The Stock Market, Perspectives from 2002

It is believed that it will be very difficult for many investors to come to terms, and that returns will be quite modest into the foreseeable future in stocks. Why? Because according to the Wall Street Journal, more than half of all stock investors began investing during the 1990s, a time of unprecedented stock market strength. From 1995 through 1999, the Dow industrials averaged a gain of 24.7% a year and the NASDAQ composite averaged a 41.9% annual gain. Most investors have wrongly come to view such enormous gains as normal. The indexes have never before been able to sustain gains like that and, we doubt, they ever will in most of our lifetimes. Many would argue that recent dramatic downfalls in markets are due to events of 9/11. However, we have also seen that fall of giants on accounts of accounting frauds have been the results of falling off their own weights.

Many investors have embraced the concept of stocks doing well over the long term. Yes, stocks do well over the long term. However, a closer evaluation of the stock markets performance shows most of the good returns are delivered during super bull markets, like the one that late 1990s! A closer look at the stock market's historical performance shows long periods of stagnation. Historical trends shows that the market peaked in 1929 during the Great Depression, it wasn't until 1954, 25 years later, which the market recovered to its 1929 highs.

For many investors who just started investing in the '90s and/or who are not old enough to remember the long-term performance of the stock market, it is now time to tone down their stock market expectations.

Based on the recent events and other historical performance trends it is suggested that investments in stock market are dan...

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...ved 2003 will be the transitional year in a “return to normality.” Investors will probably have to endure a sharp setback at some point in time, bringing stocks down to realistic levels that reflect their earnings.

While good opportunities are expected in selected stocks, it is also believed that the overall outlook for the market would be lackluster. Based on previous expectations of the economy finally improving later in 2003, it is anticipated that the Dow will end 2002 not from where it began. We advise more aggressive investors, possessing the proper investment temperament and risk tolerance, and seeking higher returns, to place 10% to 40% of their portfolios with professional money managers whose investing approach can potentially capitalize on the market whether it stagnates, rises, or falls. Past performance is not necessarily indicative of future results.