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Good Morning!
Stocks look to rebound this morning after a nearly 20% drop in stocks just over the past five trading days. At Fagan Associates, we believe in the long-term benefits of ASSET ALLOCATION. That is your assets split amongst equities (stocks or equity mutual funds), fixed income (bonds or bond mutual funds) and cash. The allocation of which is determined by your objectives, tolerance to risk, financial obligations, etc… With this in mind, during market downturns you are going to take hits, but if history is any guide, the achievement of your long term objectives will remain intact. That is what has worked for us and other investors in the past and that is what we believe will continue to work.
With this in mind, there have been eleven bear markets of more than 40% with only one of the eleven shaving more than 50% from the Dow Jones Industrial Average, that being the 89% loss by the Dow during the Great Depression. With this in mind, if one were to think that we are going into a depression-like economy, sell now. However, if you believe as we do, that this pain will not compare to the Great Depression, then, with the Dow down more than 40% from its peak, now is a good time to nibble. We started this last week and absent any specific directives to the opposite from our clients, will continue to do so. We also believe that now is a fairly good time to look at high-grade corporate bonds and General Obligation Municipal Bonds.
Dennis Fagan
Chris Fagan