Client Communication Briefing
– Continued Market Volatility
September 19, 2008
It was another volatile day
in the stock. Some would consider the 400+ point gain yesterday in the Dow
Jones Average to be a positive but we see it as just another indication of
extreme volatility. I don't think anyone can accurately predict what will
happen next. This is true in "calm" markets but particularly apparent
in times of tremendous uncertainty. It may be of interest to know how Monday’s
decline in the market compares to previous declines since 1950:
|
Rank |
Date |
S&P
500® |
Change
vs. |
|
1 |
October 19, 1987 |
224.84 |
-20.47% |
|
2 |
October 26, 1987 |
227.67 |
-8.28% |
|
3 |
October 27, 1997 |
876.99 |
-6.87% |
|
4 |
August 31, 1998 |
957.28 |
-6.80% |
|
5 |
January 8, 1988 |
243.40 |
-6.77% |
|
6 |
May 28, 1962 |
55.50 |
-6.68% |
|
7 |
September 26, 1955 |
42.61 |
-6.62% |
|
8 |
October 13, 1989 |
333.65 |
-6.12% |
|
9 |
April 14, 2000 |
1,356.56 |
-5.83% |
|
10 |
June 26, 1950 |
18.11 |
-5.38% |
|
11 |
October 16, 1987 |
282.70 |
-5.16% |
|
12 |
September 17, 2001 |
1,038.77 |
-4.92% |
|
13 |
September 11, 1986 |
235.18 |
-4.81% |
|
14 |
September 15, 2008 |
1,192.70 |
-4.71% |
The
S&P data are provided by Standard & Poor's Index Services Group.
It’s interesting to note some
the larger declines that happened within the last 20 years. How many of us can
remember what caused them?
Nevertheless, the recent
volatility is without a doubt, a source of anxiety among many investors. We can
find solace in the strategies and composition of your portfolios which are
prepared to weather through difficult times like these. In particular, we are
well-diversified which is particularly important when compared to those
individuals who were concentrated in bank stocks and are now seeing their
investments decline dramatically.
In addition to being well
diversified across thousands of companies (literally!), your portfolios are
also allocated based on your personal objectives. For those clients relying on
income distributions from their portfolios, our strategy is to look towards the
cash & bonds portion of the portfolio to avoid selling stocks at a loss.
This strategy proved very effective during the last protracted bear market from
2000 - 2002 which saw stocks decline in value by 40-50%. We were able to pay
distributions to clients without the need to sell stocks at a loss because of
the "safety net" we had in the portfolio consisting of cash and
bonds.
We're optimistic that the
situation will improve (although the exact timing is impossible to predict). In
the meantime, we are monitoring a number of areas including Charles Schwab
Corporation’s money market funds and financial health since they are our
primary custodian for client assets. Schwab’s money markets and financial
health have held up well in the turbulent market conditions. I have attached
two documents addressing each of these items from Schwab directly.
If you would like to discuss
the current market conditions further, please don't hesitate to contact us at
(262) 554-4500.