After Crash[1]

After The Crash

“Investors who have either the enterprise or the money to invest now, somewhere near the bottom, are likely to prevail over those

who wait for the bottom and miss it.”

-Benjamin Graham

Market Crashes From A Historical Perspective

Since 1928, there have been 87 market drops of 10% or more,

compared to 23 market drops of 20% or more.

*Source: GV Financial Advisors, “Market Volatility: Ten Steps to Calming Down in a Down Market.”

Since 1946, it has taken the market just 111 days, on

average, to rise to its pre-crash levels.

*Source: GV Financial Advisors, “Market Volatility: Ten Steps to Calming Down in a Down Market.”

The reason stocks have historically returned more than

fixed income over the long-term is because stock holders endure

the volatility of the market.

*Source: GV Financial Advisors, “Market Volatility: Ten Steps to Calming Down in a Down Market.”

Without the volatility that goes hand-in-hand with stock

ownership, the risk returns associated with stocks would diminish, and so would the

attendant wealth.

*Source: GV Financial Advisors, “Market Volatility: Ten Steps to Calming Down in a Down Market.”

*The following indices are being used for the above model:  Long Term Gov’t Bonds, One Month US Treasury Bills, Fama/French US Small Value Index, Fama/French US Large Value Index, CRSP Deciles 9-10 Index, CRSP Deciles 6-10 Index, S&P 500 Index.  Performance figures taken from DFA Returns Software Version: 2.0, September 2008. Past performance is not indicative of future performance.

The Crash

• February 2001–February 2003

• 22 Months

• Total Portfolio Return: -36.42%

March 26, 2001

Quotes from 2002

• “Fear of a free fall in the market.” –U.S. News and World Report

• “Most Americans have lost faith in the stock market.” –Associated Press

Since February 2003 (After The Crash)

44.54%

12.76%

20.08%

The Crash

• September 1987–October 1987

• 2 Months

• Total Portfolio Return: -23.25%

November 2, 1987

Quotes from 1987

• “Technically, the crash of 1987 bears an uncanny resemblance to the crash of 1929.” –George Soros

• “What do you expect us to do? Announce that all the Cabinet members will be buying IBM and General Motors tomorrow?” – Administration Official, New York Times

• “The borrowing has to stop. The market slide was a shot right between the eyes that had better wake us all up to the simple fact that we can’t keep romping forever in borrowed money.” – Lee Iacocca

Since October 1987 (After The Crash)

18.40%

11.80%12.55%

14.24%

6.07%

The Crash

• January 1973–September 1974

• 21 Months

• Total Portfolio Return: -42.62%

September 9, 1974

Quotes from 1974–1975

• “The U.S. banking system has been stretched very nearly to the limit.” –Business Week

• “Now even nations are in danger of default.” –Business Week

• “The worldwide threat of financial instability rises.” –Business Week

• “The slide is steep, with NO end in sight.” –Business Week

Since September 1974 (After The Crash)

35.12%

16.26%

23.66%20.38%

26.27%

The Crash

• November 1969–May 1970

• 7 Months

• Total Portfolio Return: -19.32%

June 1, 1970

Quotes from 1970

• “For automakers, 1970 was the toughest year in at least a decade. Buyers spurned big models in favor of less profitable compacts, minicars and fast-increasing imports.” –Time Magazine

• “Unemployment rose from 3.9% in January to 5.8% in November, the highest in 7 years.” –Time Magazine

Since May 1970 (After The Crash)

33.14%

13.88%

7.83%

12.28%

8.14%

The Crash

• March 1962–October 1962

• 8 Months

• Total Portfolio Return: -17.55%

June 1, 1962

Quotes from 1962

• “There, behind its grey stone walls and Corinthian columns, the New York Stock Exchange was shuddering through its worst week since 1950.” –Time Magazine

• “In one hectic week, the paper value of the 1,545 stocks listed on the Big Board plunged by $30 billion—which is more than the GNP of Australia, Sweden, and Ireland.” –Time Magazine

Since October 1962 (After The Crash)

26.17%

12.53%

17.41%

11.94%

18.96%

The Crash

• June 1946–April 1947

• 11 Months

• Total Portfolio Return: -20.96

September 19, 1946

Quotes from 1948

• “The unit volume of retail sales went down an estimated 10% during 1947.” –Time Magazine

• “It is far too late in the fight against inflation to place our main reliance upon voluntary action.” –President Harry Truman

Since April 1947 (After The Crash)

13.30%12.42%12.59%

13.17%

10.65%

The Crash

• September 1929–June 1932

• 34 Months

• Total Portfolio Return: -83.41%

February 1934

Quotes from 1929–1931

• “The country is not in good condition.” –Calvin Coolidge

• “Wall Street in Panic as Stocks Crash.” –Brooklyn Daily Eagle

• “Wall Street Lays an Egg.” –Variety Newspaper

• “Wave after wave of selling again moved down prices on the Stock Exchange today and billions of dollars were clipped from values.” –Minneapolis Star

Since June 1932 (After The Crash)

257.00%

17.76%43.03%

17.42%

46.00%

What if you locked in losses?

• On December 8, 2008, the S&P 500 Index was -38.4% and U.S. Government Three-Month Treasury Bills were yielding .005%.

• Assuming nothing changed ever (i.e. T-bill rates stayed at .005%) and you rolled your investment into T-bills for eternity…

– How long would it take for you to make up the losses?

Source: http://econompicdata.blogspot.com/2008/12/t-bills-2396-years-to-make-up-ytd.html

2,396 Years!

Source: http://econompicdata.blogspot.com/2008/12/t-bills-2396-years-to-make-up-ytd.html

What Crashes Teach Us

• There ALWAYS is a recovery.• Exact market bottoms are impossible to predict –

Don’t Try.• The next 100% move is always up.• Market recoveries historically are fast and

furious.• The single largest recovery followed the single

largest crash.• The highest historical returns follow a crash.

January/February 2009

“Investors who have either the enterprise or the money to invest now, somewhere near the bottom, are likely to prevail over those

who wait for the bottom and miss it.”

-Benjamin Graham

Necessary Attributes To Benefit From Long-term Equity Investing:

•Faith

•Courage

•Wisdom