Market Update

“All stock market declines are temporary interruptions of the permanent uptrend.”
– Nick Murray

From Mike Hard: The above is a quote from Nick Murray. Nick Murray has been a financial advisory professional for more than fifty years. He is one of the industry’s premier speakers, and the author of twelve books for financial services professionals, the latest of which is Around the Year with Nick Murray: Daily Readings for Financial Advisors. I attended a small meeting in Atlanta about thirty years ago where Nick was the speaker. He was a very interesting and well-informed speaker, and his message has not changed much: Stock market declines are temporary, but growth can continue for a long time.

Also from Mike: It has been almost four years since my friend, Robert (Bob) Harris passed away. Bob was a money manager in Sarasota for more than 51 years and was dedicated to his work. He always demonstrated the utmost concern for his clients’ investments and welfare. Bob and I would meet every couple of months or so for breakfast and an exchange of ideas. One day Bob asked me a question, then he answered it. He inquired, “Mike, do you know what happens after the market goes down? It goes up again and makes a new all-time high.” Bob was correct, or at least he has been proven spot-on for the past 230 plus years.

Unless you have been sheltering in a remote underground cave for the past 11 months, you are probably acutely aware of the turmoil in the stock and bond markets. The declines in the markets, which began about a year ago, has left investors both shocked and unsettled. Throughout the year several of the daily and weekly drops have been fast and sharp, and seemingly with no end in sight… hallmarks of a major correction. So why are we optimistic?

“Bull markets are born on pessimism.”- Sir John Templeton 1

Everyone knows the news is bad; high inflation, rapid increases in interest rates, the war in Ukraine, China and Taiwan tensions, the European energy crisis. Unfortunately, this bad news ostensibly hit us at once. Fortunately, the same bad news does not continue to punish the markets, and eventually the declines become exhausted. Just as bad news can hit at once, favorable developments (i.e., lower inflation, interest rates slowing, positive Ukraine reports) can quickly turn the market direction.

According to the University of Michigan Consumer Sentiment Index (a monthly survey of consumer confidence levels dating back to the late 1940’s) current consumer confidence is at extraordinarily low levels not seen since the 2008-2009 great recession. This is telling us pessimism is extreme. Prior to the 08-09 levels you would have to go back to 1980 to find another reading as low. Both of those periods preceded major multi-year bull market runs. 2

Inflation, which has been stubbornly high, is showing significant signs of falling. Going back to 1940, there have been 6 different inflationary spikes above 6% (per Leuthold Group research). Once peak inflation was hit and declining, all six periods corresponded with market bottoms within a couple of months. 3

Peter Lynch is regarded as one of the best stock market fund managers of all time. He ran Fidelity Magellan Fund for 13 years, from 1977 to 1990. In 1990 Peter retired from Fidelity at the age 46. He is now 78 and lives in Massachusetts. During the thirteen years he managed Magellan, he achieved an annual return which averaged slightly over 29% per year. An investor who put $100,000 into the fund the day Lynch took over would have seen it grow to $2,800,000 the day Peter retired – a remarkable return! 4

However, it was very important to stay with the fund during the entire thirteen years Peter Lynch ran it. There were several periods of decline, or should we say emotional roller coasters. This was particularly the case in 1987, when the fund’s price dropped roughly 40% over a period of several months, but staying invested through the periodic phases of weakness proved highly profitable.

Here are statements and quotes from Peter Lynch. We are including these because we believe they are important to your long-term financial health.

“Nobody can predict interest rates, the future direction of the economy or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.” 5

“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.” 6

“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections, than has been lost in corrections themselves.” 7

“In the last 93 years, the market has had about 50 declines of at least 10%. That is one every 2 years. Of those fifty declines, 15 have been drops of 25% or more. That’s at least one 25% or more decline every 6 years. If you’re not ready for that, then you shouldn’t own stocks.” 8

We at Sara-Bay believe that we are very close to a bottom and may have already seen it, but, as can be seen from the above, no one can absolutely guarantee that. We are clearly aware of rising interest rates, inflation, and an ongoing war in Europe, but then so is everyone else. Our country has seen wars, depressions, political turmoil, major unemployment, and a host of other problems. At the time these events were occurring they indeed painted a very dark picture of the future. So far Bob Harris is still proven to be right. From these past gloomy scenarios, the stock market always emerged and moved to new all-time highs.

 

5. “Beating the Street” Peter Lynch
6. “One up on Wall Street” Peter Lynch
7. “Mind, Money and Markets” Dave Harder & Janice Dorn

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