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Now is not the time for reckless abandon

Confidence in Crisis

Dr. Greenspan acknowledged what the economic data has been saying for weeks—the economy is continuing to improve. He didn’t do much to alleviate fears about the current wave of corporate governance problems that continue to make the headlines. Investors didn’t seem very impressed with corporate earnings but once again no one announced they had to restate prior quarter earnings. 

Dr. Greenspan described the stock market as “notably skittish.” He continues to be the master of understatement. While he said that the economy was doing better, he cited some concern given potential shocks the economy could take as a result of the fallout from corporate governance problems and the loss of wealth from the stock market. Describing the economy, Greenspan predicted a strong, sustainable recovery despite lingering obstacles in the form of the huge drop in stock prices and fears of more revelations of corporate misdeeds. He strongly supported recently passed legislation to create an accounting oversight board and to strengthen penalties for corporate fraud. He did cite the current “crisis of confidence” as a threat to recovery as the sharp market drop and increased volatility may cause business to hold back on capital spending programs. 

The psychology of investing causes extreme focus on the very recent past and scant memory of the history of the investing climate that confronted investors in earlier periods. Without minimizing the legitimate difficulties posed by today’s events, the perspective of history should allow us to have a “confidence in crisis” rather than a “crisis of confidence.”

Unless you have no faith in the strength of America, its people, its institutions, its societal structure and its bounty of resources, you should conclude that in the next decade, you will create personal wealth by owning a piece of America’s great companies.

As Nic Murray, a nationally known consultant to the investment community, has stated, “I don’t know the direction the next few hundred points of the market will move, but I do know the direction of the next 10,000 points, and that is up!”

Investors’ faith is currently being tested more formidably than in any period since the early 1970s. At that time we were facing the combined pressures of a long and socially painful war in southeast Asia, a true domestic crisis of government during the end stages of the Nixon administration, an energy crisis as OPEC emerged as a formidable cartel, rampant inflation and two years of dismal, at best, market performance.

And yet from the darkness of that long night 30 years ago, we have emerged bigger, stronger and better. Not only have we enjoyed increasing prosperity, but we also have made unbelievable strides in medicine, social diversity, international relations and the creation of more opportunities for more people than possibly could have been imagined. Not coincidentally, stocks in American companies have marched ahead by over 10% a year. To be sure, the gains were not smooth, but the result was more than a tenfold increase.

During these last three decades of market growth, we have faced periods of economic stagflation and armed conflict in the Caribbean, central Europe and the Middle East.

International terrorism has plagued the United Kingdom, Europe, Asia and the Middle East. New epidemics of frightening proportions such as AIDS emerged. Styles of dress reaching new lows of fashion sense have drifted in and out, and body piercing has become mainstream.

We have seen multiple crises and scandals in government; the collapse of the USSR, a Savings and Loan crisis and frightening dislocations in the banking system. And yet who would have wanted to miss the last 30 years? Who would not have wanted to share in the growth of our investment markets?

Frankly, now is not the time for timidity. It is not the time to be frozen into inaction. Transparency in accounting will improve. Technological innovations will continue. Medicine will advance. Scandals will continue as they always have. But we also believe unequivocally that we will experience great economic success over the next decade.

Now is not the time for reckless abandon. There has never been a time for financial imprudence. But there also is no bad time for a good investment. Intelligent diversification and ownership of companies with product leadership, sound financial condition and positive cash flow will yield great rewards.

Nearly a century ago, my great-grandfather commuted two hours to work. Today my commute is a matter of minutes, yet the distance remains the same as it was. He could not have imagined the horrors of the 21st century or the bounty we enjoy today. We must continue to have confidence in crisis. It is only our individual and collective confidence that will allow us to fully participate in the growth of America, the world and its markets.   

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Nancy Hadley

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stock market, investments, money

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