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    In the first eight months of 1987, the Dow rose more than 40 percent, and, despite the crash, the Dow - amazingly - finished the year with a gain. Don't panic. The crash was painful, but the market was back to breakeven just two years later. Stay diversified. Invest within your risk tolerance so a repeat of 1987 won't put you out of business.

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    In the first eight months of 1987, the Dow rose more than 40 percent, and, despite the crash, the Dow - amazingly - finished the year with a gain. Don't panic. The crash was painful, but the market was back to breakeven just two years later. Stay diversified. Invest within your risk tolerance so a repeat of 1987 won't put you out of business.

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    23 views3 pages

    Market Commentary 10-22-12

    Uploaded by

    CLORIS4
    In the first eight months of 1987, the Dow rose more than 40 percent, and, despite the crash, the Dow - amazingly - finished the year with a gain. Don't panic. The crash was painful, but the market was back to breakeven just two years later. Stay diversified. Invest within your risk tolerance so a repeat of 1987 won't put you out of business.

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    MarketCommentary October22,2012

    TheMarkets
    Twentyfiveyearslater,arethereanylastinglessonsfromtheOctober1987stockmarketcrash? YoumayrecallthatonOctober19,1987,theDowJonesIndustrialAverageplummeted22.6percent. Thisdropwasfarsteeperthanthe12.8percentdeclineonOctober28,1929,thedaymanyconsider thestartoftheGreatDepressionanditimmediatelyraisedfearsofaninternationaleconomiccrisis andarecessionintheUnitedStates,accordingtotheLosAngelesTimes. Althoughthecrashwasmindbogglingandisfirmlyetchedininvestmentlore,onalongterm performancechart,itshowsupasjustablip.Infact,inthefirsteightmonthsof1987,theDowrose morethan40percent,and,despitethecrash,theDowamazinglyfinishedtheyearwithagain. Withthebenefitof25years,hereareafewinvestmentlessonstoremember: 1. Dontpanic.Thecrashwaspainful,butthemarketwasbacktobreakevenjusttwoyearslater. 2. Valuationmatters.Traditionalvaluationmetricssuchaspriceearningsratiosanddividend yieldswereflashingredbackin1987whichsuggestedthemarketwasripeforafallsopay attentiontovaluation. 3. Staydiversified.Eventhoughcorrelationamongassetclassestendstoriseduringtimesof marketstress,itsstillimportanttoownavarietyofassetclassesasovertime,itmayhelp balanceyourportfolio. 4. Investresponsibly.Peoplewhoborrowedmoneytoinvestinthestockmarketormadehigh riskbetsgotburnedwhenthemarketcrashed.Alwaysinvestwithinyourrisktolerancesoa repeatof1987wontputyououtofbusiness.
    Sources:LosAngelesTimes;TheMotleyFool;Forbes

    Whenaskedwhatthestockmarketwilldo,thegreatbankerJ.P.Morganreplied,Itwillfluctuate. Indeed,asOctober1987shows,stocksdofluctuatesometimesdramatically.Knowingthatand rememberingthefourlessonsabovecouldhelpmakeyouabetterinvestor.


    Dataasof10/19/12
    Standard&Poor's500(DomesticStocks) DJGlobalexUS(ForeignStocks) 10yearTreasuryNote(YieldOnly) Gold(perounce) DJUBSCommodityIndex DJEquityAllREITTRIndex

    1Week
    0.3% 1.9 1.8 1.7 0.4 1.5

    YTD
    14.0% 9.8 N/A 10.3 4.1 17.4

    1Year 3Year 5Year


    18.5% 6.6 2.2 5.1 1.0 29.5 9.3% 0.0 3.4 18.3 2.3 20.6 0.9% 6.4 4.4 17.9 4.0 3.2

    10Year
    4.8% 7.4 4.2 18.7 3.3 12.2

    Notes:S&P500,DJGlobalexUS,Gold,DJUBSCommodityIndexreturnsexcludereinvesteddividends(golddoesnotpayadividend)andthe three,five,and10yearreturnsareannualized;theDJEquityAllREITTRIndexdoesincludereinvesteddividendsandthethree,five,and10 yearreturnsareannualized;andthe10yearTreasuryNoteissimplytheyieldatthecloseofthedayoneachofthehistoricaltimeperiods. Sources:Yahoo!Finance,Barrons,djindexes.com,LondonBullionMarketAssociation. Pastperformanceisnoguaranteeoffutureresults.Indicesareunmanagedandcannotbeinvestedintodirectly.N/Ameansnotapplicable.

    HOWGOODAREYOUatpredictingthefuture?Well,despiteabazillionbitsofinformationatour
    fingertipsandunbelievablecomputingpower,humansarestillprettybadatit. Letsuseanexamplethatgetstotheheartofthefinancialcrisis.AsdescribedinNateSilversbook,The SignalandtheNoise,backin2007Standard&PoorsCorporation(S&P)gaveinvestmentratingstoa particularlycomplextypeofsecuritycalledcollateralizeddebtobligation(CDO).ForCDOsthatwere ratedAAAthehighestratingpossibleS&Psaidthelikelihoodthatapieceofdebtwithinthose CDOswoulddefaultwithinfiveyearswasaminiscule0.12percent.Thatsaboutonechancein850. Now,youprobablyknowwherethisisgoing.Guesswhattheactualdefaultratewas?Accordingto S&P,itwasaround28percent.Simplemathsaystheactualdefaultratewasmorethan200times higherthanS&Ppredictedand,asSilverwrote,Thisisjustaboutascompleteafailureasitispossible tomakeinaprediction. Itseasytopokefunatbadpredictions;however,thereisalargerpointhere.First,wecantpredictthe futuresowealwaysneedaplanB.And,second,weneedtodifferentiatebetweenriskand uncertainty. EconomistFrankKnightsaidriskinvolvessituationswherewecancalculatetheprobabilityofa particularoutcome.Forexample,actuariescancalculatetheprobabilityofa60yearoldmaledying within10yearsbecausetheyhavehistoricalmortalitystatisticsthatdontchangemuchfromyearto year. Bycontrast,uncertaintyhasnohistoricaldatatouseasasolidbasisformakingaprediction.For example,predictingtheoutcomeofwarinSyriaisnotknowablebecausetheresnosetofhistorical dataorprobabilitydistributiononwhichtobasetheprediction. Itsjustourluckthatthefinancialmarketsseemtocontainelementsofriskanduncertainty.However, wecantrytousethattoourbenefitbybeingcognizantwhentherisk/rewardseemstobeinourfavor whileatthesametime,havingplanBincaseuncertaintytriestospoiltheparty.

    WeeklyFocusThinkAboutIt
    Itisatruthverycertainthatwhenitisnotinourpowertodeterminewhatistrueweoughttofollow whatismostprobable. Descartes,Frenchphilosopher,mathematician,writer

    Bestregards,

    PattyLoris,MBA,CFP LPLFinancialAdvisor

    P.S.Pleasefeelfreetoforwardthiscommentarytofamily,friends,orcolleagues.Ifyouwouldlikeus toaddthemtothelist,pleasereplytothisemailwiththeiremailaddressandwewillaskfortheir permissiontobeadded. SecuritiesofferedthroughLPLFinancial,MemberFINRA/SIPC.


    *ThisnewsletterwaspreparedbyPeakAdvisorAlliance. *TheStandard&Poor's500(S&P500)isanunmanagedgroupofsecuritiesconsideredtoberepresentativeof thestockmarketingeneral. *TheDJGlobalexUSisanunmanagedgroupofnonU.S.securitiesdesignedtoreflecttheperformanceofthe globalequitysecuritiesthathavereadilyavailableprices. *The10yearTreasuryNoterepresentsdebtowedbytheUnitedStatesTreasurytothepublic.SincetheU.S. Governmentisseenasariskfreeborrower,investorsusethe10yearTreasuryNoteasabenchmarkforthe longtermbondmarket. *GoldrepresentstheLondonafternoongoldpricefixasreportedbytheLondonBullionMarketAssociation. Preciousmetalinvestingissubjecttosubstantialfluctuationandpotentialforloss. *TheDJCommodityIndexisdesignedtobeahighlyliquidanddiversifiedbenchmarkforthecommodityfutures market.TheIndexiscomposedoffuturescontractson19physicalcommoditiesandwaslaunchedonJuly14, 1998. *TheDJEquityAllREITTRIndexmeasuresthetotalreturnperformanceoftheequitysubcategoryoftheReal EstateInvestmentTrust(REIT)industryascalculatedbyDowJones. *Yahoo!Financeisthesourceforanyreferencetotheperformanceofanindexbetweentwospecificperiods. *Opinionsexpressedaresubjecttochangewithoutnoticeandarenotintendedasinvestmentadviceorto predictfutureperformance. *Pastperformancedoesnotguaranteefutureresults. *Youcannotinvestdirectlyinanindex. *Consultyourfinancialprofessionalbeforemakinganyinvestmentdecision. *TounsubscribefromthePattyLorisWeeklyCommentarypleasereplytothisemailwithUnsubscribein thesubjectline.

    ComplianceNumber:1-111312

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