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" .... The greatest risk is the risk not taken ..." Mark Twain
" .... October is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June December, August and February .... " Mark Twain
The three years starting at the end of March 2000 and finishing 13 March 2003 was the worst period since the 1929 share market crash. Since the Iraq War the share markets have rallied from their low point on 13/3/03. The 12 month returns after this low point says a lot about the concept "its time in the market". The Dow Jones Industrial Index(13/3/03 DJI 7460) at 4/03/2004 was up 42%, the NASDAQ Index (13/3/03 1260) was up 63%. The Dow Jones Industrial Index has crossed the 10,200 mark 15 times since December last year, reflecting the narrow range for the US market over this period. After the stellar returns achieved in 2003, investors have been worried by lack of jobs and growth, then too much growth and inflation and higher interest rates, a hard landing in China and then oil. We continue to believe that international markets will move higher as these concerns are increasingly ‘priced in the market’. While many smaller investors rely upon on the catch-cry of "buy low, sell high", it happens in reverse more often than not. This is an unfortunate consequence of being human, and what is known as the "lemming" mentality...the need to follow someone else around. While some of us take comfort in the actions our fellow investors take, and apply their strategies to our own investments, we need to go out on a limb and take the risk ourselves. Investing in the share market is a risky activity, however these risks can be reduced with an open mind and through diversifying across asset classes and using managed funds. For information on the share markets and comments on world economies refer to Market commentary. . History of the Dow Jones Industrial Index
A really interesting site we highly recommend is History of the Dow Jones Index. This lists world events, US presidents, world recessions. Look at the bottom left hand side of the page. It breaks the history down in graphical form by 10 year segments dating back to when the Dow Jones Industrial Index first launched in 1895.
The impact of missing the 30 biggest share market days
What impact on your overall returns would missing the 30 biggest share market gain days over a 10 year period have? If you pull out of equity markets when you are worried that the value of your investments are spiralling down too rapidly for your comfort level, you may miss out on the biggest gains and subsequently seriously jeopardise your longer term performance of your investment portfolio.
Click here to view "Impact of missing the 30 biggest share market gain days"
(pdf file 78 KBytes Share market volatility
This graph shows that even though there are some negative years on the equity roller-coaster these negative returns disappear if you stay invested for 5 years or more.
Click here to view "share market volatility".
(pdf file 164 KBytes) Impact of market corrections
A review of crises and disasters from the past century tells us a number of things. These include: - On average, the US market fell 7% after a major crisis, recovering most of that loss in approximately two months and 12% after four months.
- No two crises are the same – many have occurred on the "other side of the world". In contrast, the latest events are unique, being an attack on the financial and military heart of America. This is also a war that is much less likely to have a clear end, but which has united much of the world in a single cause.
- Historical comparisons start to outlive their usefulness as time passes and economic fundamentals take over.
| Event Reaction | Dow Jones % Gain/Loss, days after the event reaction | | %gain/loss | 22 days | 63 days | 126 days | | Fall of France 09/05/1940 - 22/06/1940 | -17.1 | -0.5 | 8.4 | 7.0 | | Pearl Harbour 06/12/1941 - 10/12/1941 | -6.5 | 3.8 | -2.9 | -9.6 | | Truman Upset Victory 02/11/1948 - 10/11/1948 | -4.9 | 1.6 | 3.5 | 1.9 | | Korean War 23/06/1950 - 13/07/1950 | -12.0 | 9.1 | 15.3 | 19.2 | | Eisenhower Heart Attack 23/09/1955 - 26/09/1955 | -6.5 | 0.0 | 6.6 | 11.7 | | Sputnik 03/10/1957 - 22/10/1957 | -9.9 | 5.5 | 6.7 | 7.2 | | Cuban Missile Crisis 09/10/1962 - 27/10/1962 | 1.1 | 2.1 | 17.1 | 24.2 | | JFK Assassination 21/11/1963 - 22/11/1963 | -2.9 | 7.2 | 12.4 | 15.1 | | US Bombs Cambodia 29/04/1970 - 26/05/1970 | -14.4 | 9.9 | 20.3 | 20.7 | | Kent State Shootings 04/05/1970 - 14/05/1970 | -4.2 | 0.4 | 3.8 | 13.5 | | Arab Oil Embargo 18/10/1973 - 05/12/1973 | -17.9 | 9.3 | 10.2 | 7.2 | | Nixon Resigns 09/08/1974 - 29/08/1974 | -15.5 | -7.9 | -5.7 | 12.5 | | U.S.S.R. in Afghanistan 24/12/1979 - 03/01/1980 | -2.2 | 6.7 | -4.0 | 6.8 | | Hunt Silver Crisis 13/02/1980 - 27/03/1980 | -15.9 | 6.7 | -4.0 | 6.8 | | Falkland Islands War 01/04/1982 - 07/05/1982 | 4.3 | -8.5 | -9.8 | 20.8 | | US Invades Grenada 24/10/1983 - 07/11/1983 | -2.7 | 3.9 | -2.8 | -3.2 | | US Bombs Libya 15/04/1986 - 21/04/1986 | 2.6 | -4.3 | -4.1 | -1.0 | | Financial Panic ’87 02/10/1987 - 19/10/1987 | -34.2 | 11.5 | 11.4 | 15.0 | | Invasion of Panama 15/12/1989 - 20/12/1989 | -1.9 | -2.7 | 0.3 | 8.0 | | Gulf War Ultimatum 24/12/1990 - 16/01/1991 | -4.3 | 7.0 | 19.8 | 18.7 | | Gorbachev Coup 16/08/1991 - 19/08/1991 | -2.4 | 4.4 | 1.6 | 11.3 | | ERM UK Currency Crisis 14/09/1992 | -6.0 | 0.6 | 6.3 | 9.2 | | Trade Centre Bombing 26/02/1993 - 27/02/1993 | -0.5 | 2.4 | 5.1 | 8.5 | | Oklahoma City Bombing 19/04/1995 - 20/04/1995 | 0.6 | 3.9 | 9.7 | 12.9 | | Asian Stock Market Crisis 07/10/1997 - 27/10/1997 | -12.4 | 8.8 | 10.5 | 25.0 | | US Bombings Africa 07/08/1998 - 10/08/1998 | -0.3 | -11.2 | 4.7 | 6.5 | | Russian LTCM Crisis 18/08/1998 - 08/10/1998 | -11.3 | 15.1 | 24.7 | 33.7 | | World Trade Centre Terrorist Attack 11/09/2001-21/09/2001 | -14.2 | 9.6 | 16.9 | 19.0 | Corporate Scandals - Enron/Worldcom effect
15/04/2002 - 24/7/02 | -25.3 | 7.6 | -4.3 | 6.5 | | Iraq disarmament & lead up to Gulf War II 28/11/02-12/3/03 | -14.9 | 7.5 | 17.9 | 22.4 |
# Dates are US Eastern Standard Time (NZ is 1 day ahead)
Declines in the S&P 500 of 15% or more (1900-2002) | Peak | Trough | % decline | | September 1929 | June 1932 | -84.8 | | February 1937 | April 1942 | -56.7 | | March 2000 | March 2003 | -49.1 | | January 1973 | October 1974 | -48.4 | | September 1906 | November 1907 | -37.7 | | December 1909 | August 1921 | -37.4 | | December 1968 | May 1970 | -35.8 | | August 1987 | December 1987 | -33.5 | | September 1902 | October 1903 | -29.3 | | December 1961 | June 1962 | -27.5 | | November 1980 | August 1982 | -27.1 | | May 1946 | June 1949 | -25.3 | | February 1966 | October 1966 | -20.6 | | July 1956 | December 1957 | -20.4 | | June 1990 | October 1990 | -19.9 | | September 1976 | March 1978 | -19.4 | | July 1998 | August 1998 | -19.3 | | February 1980 | March 1980 | -17.1 |
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While every endeavour has been made to supply accurate, up-to-date information, errors and omissions may occur. Accordingly, Creating Wealth Ltd, Creating Wealth Investments Ltd, the directors, shareholders and advisers accept no responsibility for any loss to any person (in any form whatsoever) that arises from the use of, or reliance on, the information contained on the Creating Wealth Website. We recommend you discuss your personal situation with a Creating Wealth Investment Adviser.
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