Thursday, March 7, 2013

Record Performance

So earlier this week, the Dow Jones Industrial Average closed at a record high.  Sounds pretty exciting, but what it really means is that we are essentially back to where we were in October of 2007, before the onset of the financial crisis.  That is good news, because when the market was crashing in late 2008, many many people said it would be decades before the market got back to where it was.  

Seeing the Dow officially back to pre-crisis levels got me thinking about the analysis we did back in March of 2009 which was also a catalyst for this blog.  We compared the behavior of the equity market at that point of the financial crisis to the two other great bear markets of the past century: the Great Depression and the 1973-74 market crash.  Here's a link to that presentation. Our belief at the time was that the financial crisis was much more like the market crash of 1973-74 then it was the Great Depression, despite how bleak things looked at the time.  We subsequently updated the analysis here, here, here and here. (interestingly, the last update was almost exactly one year ago)

Here is the analysis updated through the end of February:

You can see that we are still mirroring the market from the mid-1970's.  Also, this broad index of the US stock market is up a total of 16% since the market highs in October of 2007, more or less.  It is not the rate of return we would like to see, but positive none-the-less.  This demonstrates the resiliency of the US economy, despite the many failings of our elected officials and stupid, greedy actions by some bankers and corporate executives.  The world and the economy continue to move forward.

There are certainly market corrections in our future.  No one knows when they will occur,  how deep they will be, or how long they will last.  Is is very likely that when they do occur, we will continue to advise our clients to stick with the plan in place, rather than try to time the market.