In late September of 2009, Sleeping Beauty is awakened after a long 13 month slumber. As a modern woman who has been left in charge of her family’s investment portfolio, among other responsibilities, she contacts her fee-only wealth manger, Trovena, to see how her investments have performed in the past year.
“Scott, I am sorry that I have not returned your calls over last year, but I was bewitched, again” Sleeping said, a little embarrassed. “I am now back awake, and wanted to get an idea as to the value of my investments.”
To which Scott replied, “It is so great to hear from you, Sleeping. We do not have the exact month end calculations yet, but it looks like your portfolio has gained about 3% in value while you were asleep.”
“Only 3%,” she replied, a little concerned. “What happened since I have been asleep?”
“Not sure you are going to believe me, but here are the highlights,” said Scott. “As you may remember, before you went to sleep there was the beginning of some trouble around loans made to many homeowners, and there was talk of a recession.”
“Are we in a recession?” asked Sleeping
“We are in what many are calling the Great Recession,” said Scott. “Many believe this is the worst US recession since the Great Depression.”
“Oh my! And my portfolio is up! Why didn’t the stock market crash?” she asked.
“Well, it did,” Scott had to admit, “but for you, it has already recovered.”
“So, tell me what happened.”
“It got really bad in September of ‘08,” Scott started. “Both Fannie Mae and Freddie Mac were placed into government conservatorship. Bank of America, with the prodding of the federal government, purchased Merrill Lynch to the tune of $50 billion. Lehman Brothers filed for Chapter 11 bankruptcy. The Fed lent $85 billion to AIG. The Fed let Goldman Sachs and Morgan Stanley become bank holding companies so they can received federal bail out money. Washington Mutual Bank closed and operations were taken over by JPMorgan Chase in a transaction facilitated by the FDIC. The FDIC tried to help Citigroup acquire Wachovia by backing over $200 billion of potential bad loans. Similar events were happening around the globe. And that was only in September.”
Sleeping, now wide awake, proclaimed, “with the failure of Lehman Brothers and all the other banks having problems, you would think it was a repeat of the Great Depression!”
“The press certainly tried to talk everyone into it,” Scott replied, disgusted. “From September 30, ‘08 to March 9, ‘09, the Dow lost more than 40% of its value. As you could imagine, the press was having a field day. They certainly love a crisis. I have lost count of how many 'experts,' in February and March alone, were suggesting that this was just the beginning.”
“Since the bottom of the market on March 9, the Dow has gained 50%, and your portfolio was up over 70%. Good thing you were asleep the last 12 months, as it was a period of great anxiety for many investors.”
“Sleeping for long periods of time can have its benefits, I guess,” she said with a chuckle.
“Thanks for taking such great care of my portfolio, now I have to figure out who has been taking water from the mote.”
The moral of this story is that investing is a long-term process. Good portfolios are designed to accomplish their goals over decades, not months.
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