The Dog Days of Late Summer

Friday, September 4th, 2015

Chances are these days that you’re sneaking a peak at the investment markets and probably more than once a day. They’ve certainly provided their share of excitement recently: down 4% one day, up more than 2% the next day or two.

Analysts are scrambling to explain why one day the markets are down sharply, and why the next day they’re back up again. One long-term trader remarked that the fact the Dow Jones Industrial Average can fall 1,000 points and then recover 700 in the space of four hours is seemingly evidence there is no rational explanation for what’s going on.

Meanwhile, doomsayers are predicting catastrophe, which is not well-defined but seems to mean that in a few weeks U.S. companies will be 30% to 50% less valuable than they are today. Their solution? Buy gold! It is helpful to remember that $10 invested in gold in 1926 would be worth $615 today, while $10 invested in U.S. equities in 1926 would be worth more than $58,000 today.

Perhaps the most relevant analysis came from Jason Zweig, a Wall Street Journal columnist, who suggests it is a great time to employ the teachings of Ben Graham – the father of value investing – by putting extra cash to work. A stock is unexpectedly on sale if it is 4% cheaper than it was yesterday. Will this great news persist, or should we take advantage of the buying opportunity while it lasts knowing that stocks seem to relentlessly get more expensive over time and have been doing so since the 1800s?

No one knows what will happen between now and the end of the week, the month or even the year. Nevertheless, one fact remains certain: the actual long-term value of American and global companies won’t be affected by the mood swings of investors who lurch between an inclination to buy and an inclination to sell. Whatever those underlying values are, the markets will eventually return to them regardless of the bargain the market decides to offer us between now and then.

We think the chart provided in the following link will surprise you and help keep things in perspective.

Stock Market Performance During Crisis Events