It’s easy to see where we have been, but much harder to predict where we are going. Earlier this year we had tons of financial “gurus” projecting bread lines, deflation and economic Armaggedon. Smaller investors, scared stiff by these predictions fled stocks at precisely the wrong time, March ninth, turning almost exclusively to longer-term bonds. Our twenty-plus years of experience industry has taught us many lessons, but one stands out at the current time and that is “as difficult as it can be, make certain to keep your head when everyone about you is losing theirs.” That is exactly what successful investors do.
For example, at the close of trading on March ninth, on a per share basis household names such as General Electric was at $7.41; Apple Computer at $83.11; Nike at $38.57; JP Morgan Chase $15.90; Pepsi $45.81 and Johnson & Johnson closed at $46.91.
A mere two months later General Electric has risen 82.32% to close at $13.51; Apple Computer is up 69.59% to $140.95; Nike is up 50.38% to close at $58.00 per share; JP Morgan Chase has skyrocketed 121.13% to close at $35.16; Pepsi is up 16.61% to $53.42 and Johnson & Johnson has risen 19.27% to close at $55.95.
Also approximately two months ago interest rates on 30-year U.S. Treasury Bonds were substantially lower at 3.59 % and the price of high-yield bonds were in freefall. Today, the current yield on a 30-year U.S. Treasury stands at 4.61 % and junk bonds (aka high yield bonds are 12-15% higher). The principal value of long-term U.S. Treasuries has fallen dramatically at the same time that “riskier” junk bond investments flourished. Please keep in mind that during this period many investors were being counseled by their Investment Advisors to avoid risk by buying bonds at a point in time which was the exact opposite of what was going to work. Over the past decade that this column has appeared in The Record we have written about all types of risk (principal, interest rate and reinvestment to name a few).
THE BOTTOM LINE. Our reason behind the above few paragraphs is not to suggest that now is the time to buy stock or not to buy stocks or to buy or sell bonds. Our point is merely that investors have the tendency to zig when they should zag and vice versa, ultimately ensuring mediocre returns.
We believe that stock investors will be rewarded over extended periods of time but will be tested time and time again. “Patience is a virtue” is another saying which could be heard in the Fagan household and it’s the virtue most needed for success in the markets.