Newsletters
-
Letter to Senator Dick Durbin 5/26/09 -
Looking Out of the Darkness 12/29/08 -
Musings on a Credit Crisis 4/1/08 -
Leverage 8/16/07 -
Uses of Money 10/19/06 -
Asset Inflation 3/30/06 -
Brokers vs. Advisors 7/1/05 -
Hedge Funds 1/1/05 -
Annuities 10/1/04 -
Unherd of Risk 4/2/04 -
Scandal 1/23/04 -
Moderation 9/30/03 -
Simple Lesson 6/30/03 -
Basic Tips 1/1/03
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Looking Out of the Darkness
Published: 12/29/08
The financial world was upended the past year due to a myriad of events that no one foresaw.
I have addressed the etiology in a previous letter and will not reprise it now. More important to you is what we
can expect over the next year or two and what does that mean for your account(s) with Gallagher Investment
Services, Inc. Without trying to predict the future, I will attempt to at least put some things in perspective.
The actions and volatility of all the markets: equities, fixed income, commodities, and derivatives are unprecedented
to most investors. The sharp downdraft over the fourth quarter especially, has everyone shocked and frightened. With
the S&P 500, the best domestic benchmark, losing approximately 40% for 2008 that reaction is not only normal it is
warranted. Even traditional safe havens like gold dropped like a burned out meteor. Regrettably, there were no
sanctuaries.
No one can consistently and accurately prognosticate, but we do know a few things:
- One, the problem started in the capital markets in the summer of 2007. However, some of the most severe dislocations are much improved. This is not too surprising after all of the central governments’ massive infusions, but a good sign nonetheless.
- Two, stocks will recover eventually. It is impossible to name the date, but if you look at a long term chart of stocks you can’t miss the sawtooth pattern that dominates.
- Three, although there is good reason for guarded optimism, the worldwide recession will require time to correct.
So most of your portfolios are much different than they were two years ago. They are in “storm mode” with an outsized
allocation in cash. This may persist for now, but not indefinitely. I believe in owning successful businesses and will continue to invest in stocks. On the other hand, stock allocations may be lower than in the past depending on
your personal situation and time frame. Fixed income or bonds currently offer better value than stocks so they will
gain a larger allotment than in the past. Municipals and corporate debt look especially attractive at today’s prices
and deserve more attention in some portfolios.
Even though the volatility may not be over for the near term, I will navigate the tumult with a long term perspective
that is always prudent.
Sincerely,
Marty Gallagher
Written by: Marty Gallagher