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October 11, 2001 Dear Client: Below, the blue bars are recent returns and green bars show historical returns.
Since March 2000 bonds have gained more than twice the historical rate. During the same period the stock market lost 21% annualized. The historical gains of stocks are 11% annualized (technology stocks dropped three times as much, losing 73% over the last eighteen months, or -58% annualized). "So annualized, schmannualized, when am I going to start making money?"
The stock market goes up and it goes down, in fact it loses money one out of every three years. There are extreme highs and lows, but the magnitude of the highs is greater than that of the lows. Still, through all of this, including the Depression, $100 invested in the US stock market would have grown to $206,000 today. That same $100 invested in bonds would have grown to only $7,000.
The worst stock market experience outside of the Depression was during the 1973/1974 recession when the market lost 45% peak-to-trough. During this downturn, the peak-to-trough has been -37%. The stock market of the late sixties and early seventies bore more than a passing resemblance to that of the late nineties. Back then it was the "Nifty Fifty" fad that proclaimed mega-cap growth stocks were a good investment at any price and pushed the P/E ratios up for Xerox, IBM, Polaroid, McDonald's, et al., to unprecedented levels. (Any implied resemblance to actual stocks such as Cisco, Dell, Intel, and MicroSoft is purely intentional.) In 1973 it was the OPEC oil embargo that shocked the US economy into a deep recession. In 2000/2001 we had what was shaping up to be an ordinary slowdown, now exacerbated by the effect on consumption that the terrorist attacks are having. In conclusion:
Thank you for sticking with me during this difficult time. Regards, Audrey Grubman
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