Well, the third quarter was anything but typical.  The Dow went from a record high close of 14,000.41 on July 19 to a 9% drop by mid August.  Then it turned right back around and as of October 1, 2007, the Dow had established a new high 14,087; my how things can change in such a short period of time.  For much of the last 4 months or so, the investment markets have seen daily volatility that hasn’t existed in some time.  In many weeks, 100 and 200 point swings were almost a daily occurrence for the Dow.  It seems very clear to me that lately the markets have been driven by investor fear caused by “market noise.”  I like to define “market noise” as anything that sells newspapers, magazines or gets people to watch finance shows on television.  The information is designed to alarm and prod you to take action, when in fact taking action may not be the best thing for you.  If investors would have listened to the noise and pulled out of the market in August when it didn’t look very good, they would have missed out on the quick recovery that followed, not to mention making a paper loss a permanent loss.  Because market noise appeals to your emotions instead of being directed toward rational behavior, investors often buy or sell in reaction to events.  This reaction is typically not in response to a rational plan, but rather emotionally driven.  For the most part, emotions and investing are not a very good mix.

 

Frankly I was pleased to watch the events of the last quarter unfold as I believe they have been a terrific teaching tool.  The last quarter reinforced that sometimes markets move in the short term based not upon solid economics, but upon investor/market emotion.  However, over the long haul capital markets will behave much as they have over the last 70 plus years – based upon economic principals and fundamentals.  It also reinforced that, even though it may be difficult, it is important to ignore the crowd, and it is critical to stick with your strategy.

 

One book, among the many I have been reading lately, that I would highly recommend is called Your Money and Your Brain by Jason Zwieg.  It takes a very “easy to read” approach on how our neurological wiring can actually be a detriment when it comes to financial decision making.  I know it may not sound very interesting, but I think you’ll find that we all do many of the things mentioned in the book that can cause us to make mistakes with our finances.

 

I wanted to close by thanking each of you for the trust you place in me.  I am keenly aware how important your investments are to you, and I am truly humbled by the fact that I get to work with terrific people every day.