East-West Times…Information you desire

Those who cannot remember the past are condemned to repeat it.
-George Santayana, Philosopher

Unheeded Lessons
     The history of investing is littered with examples of lessons that, had they been heeded, likely would have spared investors a significant amount of heartache and saved their portfolios a significant amount of money. Consider the following events that characterized irrational market exuberance:

The Tulip Bulb Craze
     In the mid-1500s, tulips were first imported into Europe from Turkey. By the early 1600s, limited supply and increasing demand fueled speculation for tulips. At the height of the mania, investors traded rare bulbs for tens of thousands of dollars. Fortunes were lost when prices for the bulbs returned to reality.

The South Sea Bubble
     Government debt in Britain soared to more than 10 million pounds in 1711. The South Sea Trading Company purchased most of the debt and then sold shares in the company to the public. Rumors that the British government would give South Sea exclusive trading rights in foreign ports boosted the shares from 100 to 1,000 pounds. Unfortunately, the trading rights failed to deliver the expected results, and share prices plummeted.

The Nifty Fifty Crash
     Blue-chip companies with proven track records fared well during the onset of the 1972-73 bear market. Investors raced to purchase them, driving prices skyward. Eventually, the bear market prevailed and many of these “can’t miss” companies faded into obscurity.

The Dot-Com Meltdown
     During the late 1990s, many investors in the U.S. stock market bought into technology-oriented companies that, for the most part, they did not understand. The concept of earnings was ignored as investors shelled out billions of dollars to buy unprofitable companies that traded at up to 350 times cash flow. The so-called “new economy” did not last and the market correction hit hard.

The Real Estate Bubble
     Existing family home prices peaked in July 2006 perpetuated by low interest rates and lax lending standards. Soon afterwards, supply began to outweigh demand, and the housing market began to soften. With ballooning inventory and sharply reduced sale volumes, the bubble “burst” in 2007 as many homeowners were no longer able to meet their monthly payment obligations and home foreclosure rates skyrocketed.

Looking Ahead
     Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.
- Charles MacKay, Author

MacKay’s quote comes from a book he wrote in 1841, entitled Extraordinary Popular Delusions and the Madness of Crowds. It was a book about investor behavior. Although your investments will periodically decline in value, congratulate yourself if you have a long-term investment plan -and you are sticking to it. In time, I believe your patience will be rewarded. If you have stumbled badly or don’t have a plan at all, now is the time to get one. Helping investors reach their long-term investment goals over- time, and regardless of market conditions it is a financial advisor’s job.

Disclosures:
     This article was produced by the Lockwood Advisors, Inc. and is for informational purposes only. It is not intended to meet the objectives or suitability requirements of any specific individual or account. An investor should assess his/her own investment needs based on his/her own financial circumstances and investment objectives.

     Neither the information nor any opinions expressed herein should be construed as a solicitation or a recommendation to buy or sell any securities or investments.

     It is important to remember that there are risks inherent in any investment and that there is no assurance that any money manager, asset class, style, or index will provide positive performance over time. The investment return and principal value of an investment will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.

     Diversification and strategic asset allocation do not guarantee a profit nor protect against a loss in declining markets. Past performance is not a guarantee of future results.

     Securities offered through The O.N. Equity Sales Company, Member FINRA/SIPC, One Financial Way, Cincinnati, OH 45242. Investment Advisory services offered through O.N. Investment Management Company.