Money Matters: Investors need courage in down times to see opportunities

By Ashley Wilson The Daily Record Newswire I'm starting to receive phone calls that are reminiscent of 2008. It's understandable that investors are jumpy about today's economy and market environment. Jobs and housing numbers are depressing. U.S. credit was downgraded last month. Europe's debt problems seem to be accelerating. Terrorism and unrest in the Middle East threaten global stability. The wounds from the financial crisis are still not healed and because of this, most investors are scared and blind to opportunities that exist today. Albert Einstein once said: "In the middle of difficulty lies opportunity." History is full of stories of smart investors who saw opportunity during periods of great difficulty and turmoil. In October 2008, the New York Times published an Op-Ed piece by Warren Buffett. He said, "Bad news is an investor's best friend. It lets you buy a slice of America's future at a marked down price." He went on to say, "Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value." While the rest of the world was busy panicking, Buffett was busy looking for opportunities. In fall 2008, amid the financial crisis, Buffett was making strategic purchases while many others were selling. In times of uncertainty, successful investors look for potential opportunities. In my opinion, too many investors aren't successful because they are too scared to open their eyes to opportunity. They end up making emotional mistakes that prove to be costly. According to Ned Davis Research, an equity investor who remained fully invested during the last 20 years made a 9 percent annual return. However, if an investor missed the 20 best days during those 20 years, the annual return was a dismal 3 percent. Because no one owns a functioning crystal ball, selling into the teeth of a market downturn historically produces poor returns. Not only are investors who sell locking in their losses, but they are limiting their recovery potential. Looking back at the 27 bear markets since the Great Depression, the average return in the 12 months following the bottom was 37.8 percent. However, according to Ned Davis Research, an investor who missed the first six months of the recovery by holding cash, would have had a return of only 7.7 percent. Of course, past performance does not guarantee future results. Many opportunities exist today. Did you know that 70 percent of the S&P 500 companies beat earnings estimates in the last quarter? Profits are expected to continue to rise, because most corporations are much healthier than the consumer and the government. Most large U.S. companies have low debt and solid balance sheets. It may not be as difficult to find a profitable, growing business with excellent fundamentals at an attractive price. One of my favorite companies (a household consumer staple that shall remain nameless) continues to innovate, introduce new products and capitalize on growth prospects in the world's emerging markets. Over the past 10 years, its sales have grown 7 percent annually, profits have grown 10.5 percent annually, and the dividend -- which exceeds the yield on the 10-year Treasury by a significant margin -- has been growing at 11.5 percent annually. The stock has recovered all of its losses from the financial crisis, and then some. In fact it reached new all-time highs recently. Volatility is going to be a normal part of this recovery, which will scare many investors out of stocks, but present great opportunities for investors with strong stomachs. The key is whether investors have courage to open their eyes and take advantage of what is in front of them. It may mean the difference between either a financially secure retirement or one filled with financial hardship. ---------- Ashley Wilson is a financial adviser with the Wilson Financial Group of Stifel, Nicolaus & Co. Inc. in Portland. Contact her at 503-499-6260 or wilsonam@stifel.com. Note that an investment in stocks will fluctuate and may be worth more or less than the principal invested when sold. Published: Thu, Sep 29, 2011