Good news today and some history too

I just received my Master Practitioner Strategist certification in Neuro-Linguistic Programming learning all kinds of wonderful facts, which I will continue to share with you in the weeks and months to come. For example, did you know that information flows through our minds at a rate of 2 to 4 million bits per second, yet we can only digest 134 bits per second? That means the flood of information floods our minds at a speed similar to that of water gushing from an open fire hydrant. We “filter” what actually enters our minds by removing information that doesn’t make sense, distorting information based on our beliefs, and/or generalizing.

With that in mind, and some facts to back me up, let me assure you that the news has been overgeneralized and grossly distorted by the media almost every day for the past 3 weeks, and the positive facts have come to light in the days since. to their actual occurrences. . Specifically, in the initial days of the wide point spread gains and losses, only 1-2 days later we were shown the actual percentages of said swings, which were much more spectacular in terms of being able to frame this activity; the percentages were much larger relative to historical percentage swings. Announcing that these were the “biggest point swings in history” was true, but NOT useful information for the investing public to the extent that percentage declines did not justify such 24-hour edge-of-the-saddle myopia.

Everyone has a task; the press is excelling at theirs. They have captured the attention of people who didn’t even know what the DOW Jones was a year ago. Now let’s loosen the giant they have on our minds and attention and think about our individual responses to this financial situation.

It has been said that you cannot buy happiness. The currency of happiness is always liquid, always available to those who handle it on a daily basis, or those who dare to learn how to handle it on a daily basis. It is our choice. We owe it to ourselves to muster our own resources, when those beyond our control are less predictable, and to captain our own ships, especially when the waters are rough.

So why do we automatically connote or measure happiness in the available financial currency? Why are we myopic about the total of our investments each day? We need to understand history a little better because I think it was Mark Twain who once said, “History may not repeat itself, but it sure will rhyme.” Historically we have endured depressions and recessions and voila, there are people around, real people, who survived it. Like them? Often with stories of personal strength and community support. The great depression is a time that will remain singular in scope and magnitude in my opinion; we are nowhere near the financial calamity of the great depression. I also don’t believe that the current financial situation is permanent, or that it will take decades to get out of it.

Here’s some of the data courtesy of Dimensional Fund Advisors, an institutional asset management firm I use in Santa Monica, CA:

We are now in the 10th bear market in the last 50 years for US stocks (defined as a peak-to-trough drop of 15% or more on the Standard & Poor’s 500).

From October 9, 2007 to October 15, 2008, the Standard & Poor’s 500 has fallen 39.53%.

For comparison, past bear markets, their percentage declines, and durations are as follows:

• March 2000 – October 9, 2002 fell 49.2% over 28 months
  • (Bill Gross was quoted as saying “Stocks are nowhere CLOSE to their bottom” in September 2002)
• August 25, 1987 – December 4, 1987 33.5% drop lasting 3 months.
• January 11, 1973 – October 3, 1974 fell 48.2% in 23 months.
  • (46% of adults feared another major depression, which of course never happened.)
• November 29, 1968 – May 26, 1970 36.1% in 18 months
• December 12, 1961 – June 26, 1962 28% in 6 months

In each of these cases, the markets rallied, paying huge dividends to those who stayed the course. Amidst the vein-popping newscasters and financial forecasters, these investors kept the wheels of their boats steady, refusing to be rocked by unnecessary noise.

Previous “unprecedented events” include, but are not limited to:

• Highest interest rates in 150 years in 1981
• The planning for the year 2000 was immense, but that entire era is hardly memorable now.
• Dow fell 17% after 9/11 and rebounded
• The SAR virus in 2003 threatened to bankrupt the world, but it didn’t
• 2002 Stocks gain 969 points on 4-day low on Oct. 9, then biggest 4-day gains since 1933
• March 2003: Investors bought fixed income locking in the lowest yield in 44 years, when stocks were clearly the lowest-priced asset and “best buy.”

I bring you today’s GREAT news so you can save the tune:

1. Social Security cost-of-living benefits were announced today, resulting in a 5.8% increase in payments to more than 50 million seniors effective January 1, 2009, increasing the average monthly check of $1,090 to $1,153.
2. The credit crunch has already eased, showing that the “rescue” plan called TARP (Troubled Asset Relief Program) is starting to work.
3. Gas prices continue their decline. Every penny that falls into a gallon of gas results in a BILLION dollars in potential consumer spending, 2 cents translates to two billion dollars in spending…get the point. We need consumer confidence and spending, so this is great news.

Discipline in all of life is acting when action is not totally necessary; that is, buying insurance before we need it and/or buying securities when “the world” is looking for coverage. These two actions seem somewhat counterintuitive, but they are essential for long-term success.

And what is the most successful stock picker in history doing today? Buying shares! (Not that I’m recommending buying wholesale today, though, as it certainly seems there are still questions to be answered and market volatility is bound to continue.) However, Warren Buffett is actually buying stocks, along with a bunch of other investors too we wouldn’t be up on the day 154 points on the DOW, after the dire predictions and ticker tape on the streets of New York this morning reading STOCKS DIVE, even before the market opens. ’nuff said.