Material prepared by Raymond James for use by our financial advisors. Rational Investing in Irrational Times
Why We’re Here … Understand the current economic situation Assess the implications Provide perspective Look toward the future Answer what questions we can
Something to Think About … “ Be fearful when others are greedy, and be greedy when others are fearful. “ I haven’t the faintest idea as to whether stocks will be higher or lower in a month – or a year – from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up.” – Warren Buffett New York Times op-ed October 16, 2008
The collapse of both the subprime lending market and the real estate "bubble" led to widespread credit problems.
Many once-strong U.S. financial institutions declared bankruptcy, failed or were acquired in 2008, prompting the Troubled Asset Relief Program (TARP), a $700-billion bailout plan to cope with the bad debt left behind.
In December 2008, the National Bureau of Economic Research declared that the United States had been in a recession since December 2007.
In February, President Obama signed a $787-billion economic stimulus program – $350 billion of which came from the existing bailout fund and the rest from private investors and the Federal Reserve, making use of its ability to print money.
On March 2, 2009, the Dow Jones Industrial Average fell below 7,000 for the first time since October 1997.
On June 8, 2009, General Motors and Citigroup were removed from the Dow Jones Industrial Average, replaced by Cisco Systems, Inc. and Travelers Companies, Inc.
In July, the American Bankers Association reported credit card and home-equity delinquencies had hit record levels.
Where We Are Now The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. Investors cannot invest directly in an index. Past performance is not indicative of future results. Source: Dow Jones Dow Jones Industrial Average
Looking Forward Source: FactSet as of 5/29/09 Past Recessions and Inflation
Unemployment Rate Concern Past Recessions and Unemployment Source: FactSet as of 6/30/09
What Has the Government Done? Source: Federal Reserve Fed Funds Rate
Calendar-Year Total Returns for Large Company Stocks 1 (1926 to 2008) … While Experiencing Dramatic Ups and Downs Source: Ibbotson 1 Large company stocks represented by S&P 500 ® Index. The S&P 500 Index is widely regarded as the standard for measuring large-cap U.S. stock performance, and includes a representative sample of leading companies in leading industries. The index is unmanaged and is not available for direct investment. Past performance is not indicative of future results.
Why Market Timing is So Difficult All investing involves risk and you may incur a profit or a loss. Past performance is not a guarantee of future results. Source: The Hartford, Ned Davis Research. The S&P 500 Index measures changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividends reinvested. The S&P 500 represents approximately 75% of the investable U.S. equity market. Indices are not available for direct investment. Occurred during a bear market Occurred during the rest of a bull market Occurred during the first two months of a bull market S&P 500 Index: The 50 Best Days from 1978 to 2007
All investing involves risk and you may incur a profit or a loss. Past performance is not a guarantee of future results. Source: The Hartford, Ibbotson Associates, Inc. The S&P 500 Index measures changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividends reinvested. The S&P 500 represents approximately 75% of the investable U.S. equity market. Indices are not available for direct investment. Impact of Missing the Market S&P 500 Index Average Annual Total Returns: 1978 to 2008
Recommendations for Investors Don’t overreact: The temptation to “exit the market” may be nearly overwhelming. Think long term: As Buffett – and history – tell us, at some point, the markets will turn. We don’t know when … or to what degree. So be wary of selling at the bottom – and missing opportunities as the market recovers. Assess your situation: Evaluate your short-term financial needs and reaffirm your longer-term goals. Evaluate your investments: Review your financial plan and your portfolio to help put current events into perspective and – if you conclude it’s needed – make necessary adjustments. Look for opportunities: Once you’ve thoroughly assessed the situation, your holdings and your personal circumstances, you may want to start identifying opportunities for future investment. Securities issued by fundamentally solid companies, backed by expert management and sound policies, may be at historically low prices now. But as the economy turns, they could offer significant potential for appreciation.
Raymond James Financial While no financial firm can be totally unscathed by recent market and economic events, Raymond James Financial continues to fare well in this challenging environment. We attribute this strength in large part to the conservative business principles and thoughtful management strategies that have shaped our company since its inception. We believe that the key to our success lies in our commitment to our clients as well as to these fundamental tenets: • Understanding the whole picture • Long-term perspective • Research and due diligence • Diversification and asset allocation • Risk management • Manager selection and monitoring • Account protection • Planning for the future
Disclosures Holding stocks for the long term does not ensure a profitable outcome. Investing involves risk and investors may incur a profit or a loss. Standard deviation measures the fluctuations of returns around the arithmetic average return of investment. The higher the standard deviation, the greater the variability (and thus risk) of the investment returns. An inverse relationship typically exists between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall, and when interest rates fall, fixed income prices generally rise. Investing in small-cap stocks generally involves greater risks and, therefore, may not be appropriate for every investor. U.S. government bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government. Diversification does not ensure a profit or protect against a loss.