Stairs and Elevators
By Maurice Stouse
“Trees don’t grow to the moon”.
“ The stock market makes you feel like you’re climbing stairs when it’s going up and like you’re riding an elevator when it’s going down”. These are but a few of the sayings that retired stockbroker Keith Knight of Santa Rosa Beach can be heard to say from his 48 years on Wall Street. He was not only a stockbroker, but went on to be Senior Vice President for several major investment firms.
My own career in financial services started by working on the phones at a call center of a major US mutual fund and brokerage firm. On the morning of October 19, 1987 I was at home watching the old FNN and witnessing the elevator going down fast. The market had an amazing climb up the stairs in 1987 and an amazing and fast fall down the elevator by October. Caller after caller wanted to redeem their shares or investments. We would try and encourage the callers with the things we were told and had learned; Not to give up hope at the worst possible time and sell out, or to try and time the market, but rather spend time in the market.
After the market drop, things got very quiet. But a lesson was learned. After finishing the year at a 5.2% return in 1987 the S&P 500 gained 16.8% in 1988 and an even better 31.5% in 1989. The fact is, markets do experience a significant retreat on average about every four years. And even though the long-term average of the S&P 500 is over 9%, it is rarely smooth. To potentially experience that average, investors have seen they have to spend time in the market. Ideally you want to ride out the retreats in values and be invested when the market has a strong year. Channeling Keith Knight again, we hear him give his opinion that “your money won’t work any harder than in the stock market, because money works harder in American industry than anywhere else”.
What investors have experienced over the years is that the things that can make stocks rise are similar to the things that make them fall; earnings, interest rates, inflation, the value of the dollar. When stocks are high, earnings have had to keep up- to go up, or stocks have to come down. Interest rates are an indicator of the money supply. Typically, looser rates mean more dollars are out there and that can be good for stocks. As the money supply is tightened, interest rates rise and there are fewer dollars available to put in to assets, such as stocks. Inflation cuts in to earnings and a company’s earnings should outpace inflation. Wage growth is good for raising one’s standard of living but also can drive inflation. At the end of the day investors are reminded to stay the course in line with their goals, time frame and risk tolerance. And, to remember as Keith often says, money never sleeps!
Contact or visit with your advisor today to start or continue the conversation about investing in the markets over the long term.
Maurice Stouse is a Financial Advisor with Raymond James and he resides in Grayton Beach. He has been in financial services for over 30 years. His office is located at Raymond & Associates, Inc., 34851 Emerald Coast Parkway, Suite 200, Destin, FL 32451. Raymond James advisors do not offer tax advice. Please see your tax professionals. Raymond James & Associates, member New York Stock Exchange/SIPC. Phone 850.460.1995. Email: Maurice.stouse@raymondjames.com.
Views expressed are the current opinion of the author and are subject to change without notice. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts will occur. Investing always involves risks and you may incur a profit or a loss. No investment strategy can guarantee success.
The S&P 500 is an unmanaged index of 500 widely held stocks. Keep in mind that indexes are unmanaged and individuals cannot invest directly in the index. Index performance does not include transaction costs and other fees, which will affect the actual investment performance. Individual investor results will vary.
Holding stocks for the long term does not insure a profitable outcome.
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