Just in case you have been taking a Rip-Van-Winkle-style nap, it's been a year since investors awoke to a Monday morning (September 15 fell on a Monday in 2008) in which the financial world as it had existed for decades imploded and came to an end. Lehman Brothers had declared bankruptcy the day before, and Merrill Lynch had hastily arranged to be acquired in order to avoid the same fate.
These events, as well as certain government missteps that followed, set off a banking panic, which triggered a recession. We have argued extensively in numerous places, however, that because of this recession's unusual cause, the recovery could be quite rapid once those unusual conditions (the panic) subsided -- and that is exactly what appears to have happened (see for example the short post with encouraging graphs entitled "A picture is worth a thousand words" from this past June).
Many investors panicked themselves, selling their financial market assets in droves as the market plunged towards new lows -- equity funds alone experienced net outflows of $25 billion in February of 2008 and another $27.5 billion in March of 2008, according to the Wall Street Journal (at about the same time that these investors were fleeing the market, we published a post entitled "Don't get off the train," explaining the real dangers of such behavior).
If, however, you had been invested in a portfolio of well-run businesses in front of fertile fields of growth, such as those contained in the Core Growth Strategy at Taylor Frigon, you could have gone to sleep a year ago and woken up today down about 4.28% after the deduction of management fees* -- a market move not much larger than what you might see in a single day of heavy trading.
Of course, the broader market averages are down somewhat more over the same period (over 16% for the S&P 500), but this just serves to emphasize the assertion we have made many times in the past that which individual companies you choose to own is important. However, the real point is that investors who followed the advice of Wall Street's financial engineers and chased after structured products, commodities plays such as oil, foreign exchange bets, and thirty-one flavors of international investing (which often amount to foreign exchange bets themselves) only wish they had done as badly as the S&P 500 -- because those investments generally hurt investors much more.
Rip Van Winkle is not exactly an admirable character, if you take the time to read the original version of Washington Irving's charming short story, and we do not urge investors to adopt his oblivious attitude towards their actual investment portfolios. The point we are trying to make is that if you follow our somewhat boring and often-repeated advice of matching your investments with solid, well-run businesses in front of fertile fields of growth, then you should be better prepared to weather the inevitable ups and downs of the market and business cycles, and you might sleep better at night too!
On this anniversary of that fateful day in 2008, readers may find it edifying to revisit the following blog posts from the past year:
- "Hurricane hits Wall Street firms" 09/15/2008.
- "Government solutions disintegrate" 09/29/2008.
- "Taking stock of 2008" 12/31/2008.
- "Managing investments in the new era" 02/18/2009.
- "Four-letter government words" 04/15/2009.
- "Rip Van Winkle, 2010" 10/11/2010.
* Past returns no guarantee of future performance. Performance results cover period from close of markets on Friday 09/12/2008 through close of markets on Friday 09/11/2009. Taylor Frigon Capital Management complies with the Global Investment Performance Standards (GIPS) for standardized and ethical calculation and reporting of performance. Full GIPS disclosures for the firm are available at the Taylor Frigon Capital Management website at https://www.taylorfrigon.com/TAYLORFRIGON/WEB/me.get?web.websections.show&SCH6022_003.
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