WHAT A YEAR!

Country Routes - December, 1997

1997 has been quite the year so far. A real dichotomy. At the beginning of the year there was a real concern if this would be the year of the BIG correction. Would the U.S. stock markets make it three-in-a-row? Up until August, it was turning out to be the year that wasn't supposed to happen for many market watchers. Seasoned investors started to take out profits earlier in the year especially after the shakeup in March/April when the markets dropped over 10%. See my September article on Volatility. One respected newsletter was advocating 100% cash just prior to this dip. For awhile they looked to be right on. By the beginning of May the S & P was up 13.5% to a new high of 832.29. So much for going 100% cash. From that point it kept going to 932.32 August 6 up 27% so far for the year. The DOW up 26% to 8259.31, the NASDAQ up 26.6% to 1630.44 & the TSE up 17% to 6933.70. Please see my April article, "When Is A Good Time To Invest?"for an explanation of these index symbols. At that point even some of the skeptics (Bears) were being trampled by the Bulls (Optimists). Investor sentiment shifted to one of confident optimism.

As has been proven several times previous in the year, people where now looking forward to these temporary dips as buying opportunities. The small investor seemed to understand, that as long-term investors, they could pick up some bargains in the meantime. And generally, it seemed to be working. After all, people could show you on paper, how being fully invested was paying off. Many people's comfort levels where being expanded. But ever since early August, with the markets teetering on some breathtaking heights, some nervousness started to creep back in and any negative or unexpected piece of news started to take its toll on investor's nerves. A bit of a sell-off started to occur. With currency jitters in the Far East culminating in what is being coined as the "Asian Contagion". Hong Kong plunged below the 10,000 level to 9059.89 October 28 from over 15,000 October 10. In two weeks from October 10 to October 24 it lost nearly 400 points or 26.33%. The reverberation of this plunge was felt around the world. It brought down ALL world stock markets including the much watched DOW 330 points to below the 8,000 level to 7715.41. It has been whittled down to around 7,500 currently.

What investors witnessed Monday October 27 was a severe correction, not a crash similar to the one that occurred on Black Monday, October 19, 1987 just over a decade ago. CNBC did a full week reporting comparing 1987 to 1997. In both years, many markets around the world made lofty advances and became overvalued. Ten years ago the DOW topped out August 25 with a gain of 43.6% since the beginning of the year, while this year it reached its peak on August 6, up 28%. But let's look realistically at the differences. On October 19/87, the DOW crashed 509.9 points while Monday's loss of 554.26 points was actually less of a drop. While the 1987 loss was a whopping 22.69%, Monday's sell-off was only 7.19%. The plunge in the TSE was a comparable 6.18%. Yet Robert Procter in his Elliott Wave Theorist is comparing this period of time to a mania.

Lately, some of my clients & potential investors have expressed their concerns to me lately with all the uncertainty around. Where do I put my money now with interest rates remaining so low? It's at times like this that I really earn my money. In a strong Bull (up) market, "Any dove can fly" but how can one calm investor's nerves in today's uncertain financial climate. Please read my article on Volatility again that helps explain the ups and downs of the markets. Today it would be prudent to exercise caution. Sleeping at nights is a valuable investment strategy. This is not a time for "Irrational Exuberance". For investor comfort, I would advise a defensive strategy. Of course, if there is a need for cash today, a buy-and-hold strategy is usually the *best*. That is not to say that occasionally it may be prudent to cash in on some of your profits. As I wrote in my recent client newsletters, "Perhaps taking out some profits as a percentage held in cash to re- invest at a later date may give you a greater degree of comfort". For many, going to sleep on a cushion of cash helps one to have pleasant dreams, not nightmares. But I realize, everyone's comfort level is different. For that reason, it is imperative you get good experienced financial advise to help you design a portfolio to weather the storm of such volatile stock markets. (See my March 94 article, "Long-Term Investing")

There are a few good fund managers who do better in times like these. An "Independent"financial advisor is usually the *best* to consult to give you unbiased advice.

If you have any questions, please call Reg Borrow at (519) 855-6639. He is an Independent Financial Consultant with Regal Capital Planners Ltd.

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Created: Mon Sep 23 10:30:50 1996
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