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A parable for today's investor:
Diversify and hold steady against doom-saying.
Do you remember a time when these were typical financial headlines?
"Strongest One-Month Total Return
for S & P 500 in Five Years"
"Dow Transportation Average Jumps 29%"
"Real Estate Securities Outperforming all Other
DFA Equity Strategies"
Well, there's no need to feel nostalgic. These aren't stories from the
halcyon days before foolhardy lending and speculation helped bring the economy
to a near-standstill. They're adapted from overlooked financial news occurring right
now – this year – even as economists debate whether we're in a recession.
Since a March 10 low for 2008, the S & P 500 has rebounded 11% (through May 2), with April the best month (4.87%) since December, 2003. Transportation stocks
in the Dow, despite soaring fuel costs, have recovered to near record levels.
And on April 30, Dimensional Fund Advisors' real estate securities portfolio
was outperforming its U.S. and non-U.S. equities with double-digit returns for
year-to-date.
By the time you read this essay, these and dozens of other trends will
again have migrated upward or down – perhaps even sharply. Yes, it is possible the
stock market will fall further. Or not. And yes, many analysts see "prolonged pain" for the dollar and the economy. There's plenty of worry to go around.
So is now the time for a prudent, diversified investor to retreat – temporarily – from the market?
Beware the prophets.
We'd like you to meet William Miller: a kind of market analyst.
In the early 1800's, after years studying all of the available data (i.e., the
Book of Daniel, Bishop Usher's timeline of creation), Miller deduced that The End would occur some time between March, 1843, and March, 1844.
Sincere and charismatic, he gained a small following. But when Miller's "end-time" elapsed harmlessly, he did something remarkable – undeterred, he simply checked his numbers and recalculated. And this time he set a specific date, October, 22, 1844. He circulated what these days we would call a prospectus, complete with his citations and methodology, and took to the Sunday lecture circuit.
Suddenly thousands responded to Miller's more-detailed vision, many of them well-to-do and influential. People sold their property, abandoned their families
and careers ... readied themselves spiritually for the Second Coming.
As you know, the sun rose as usual October 23rd, 1844, and has continued
to do so.
We mention this odd chapter in American history because it provides several exact parallels for today's investor in today's difficult stock market.
(cont.)
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