spring 2009

F I N A N C I A L
Lessons from history
A closer look at history offers lessons of hope and opportunity


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As the spectre of a financial crisis not seen in several decades stalks the markets and the financial media promotes a largely pessimistic view, some investors may begin to lose faith in their equity investments.

By Keith Butler

As the spectre of a financial crisis not seen in several decades stalks the markets and the financial media promotes a largely pessimistic view, some investors may begin to lose faith in their equity investments.

What can we do to drown out the media noise and gain perspective? There is only one real option — we must study the history of past market events for clues and guidance about what the future may bring. There are three common themes that link the major market downturns of the last 40 years:

  • There is significant uncertainty in the short term about the direction of capital market.

  • There is a risk to being out of the market — it is impossible to predict precisely when a bear market will turn into a bull.

  • Fiscal and monetary policies have contributed to eventual market recoveries.

Understanding that there are common threads that link market downturns is critical to navigating the current market environment. It allows us to use history as a guide, albeit an imperfect one, when we might otherwise feel rudderless.

Even a cursory glance at past market performance shows that bear markets usher in bull markets. We can also see that the overall trend points to higher long-term returns in equity markets.

After the last 13 bear markets in the United States — going back to 1948 — each one recovered and led to a bull market with substantial gains. The average bear market saw stocks fall by 20% and lasted 11 months. After bear markets ended, it took about 20 months on average for the S&P 500 to recover and reclaim its losses. In the 12 months after the start of each bull market, the average gain was more than 35% while the worst post-recovery gain was still 16% over the following year. The best post-recovery gain was almost 60%.

To get a copy of the full article and speak with an MD Management advisor, call (800) 229-1798.

MD Financial includes CMA Holdings Incorporated companies offering financial planning and a banking referral service through MD Management Limited, mutual funds by MD Funds Management Inc. and MD Private Trust Company, investment counselling services by MD Private Investment Management Inc., estate and trust services by MD Private Trust Company and insurance products by MD Life Insurance Company and MD Insurance Agency Limited.

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