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Market lesson since 9/11: Don’t bet against us

Updated: May 3, 2013 12:14PM

Originally published: September 9, 2004

We’re approaching the third anniversary of Sept. 11, 2001, a date that changed our lives forever. We feared for our system. The attack was directed at the heart of our financial district, the center of our economy and the free enterprise system that has provided our country’s remarkable and unique prosperity and opportunity.

Our financial markets were closed, and there was concern that when they reopened prices would collapse. That day I wrote a column headlined, “We will survive and prosper.” My editor asked me to try to put that situation in perspective. Here’s what I wrote:

“If you look at a long-term chart of the stock market, you’ll find -- without exception -- that at every juncture when our situation looked most bleak, the market was making its bottom. In fact, those fearful times created the best long-term buying opportunities. Those who had faith to stick with their investments, and buy more, were well rewarded.”

A look at history

Several days later I asked Ibbotson Associates, the well known market statisticians based here, to create a chart which I’ve used in every speech since 9/11. It illustrates the stock market reaction -- both immediate and after three years -- to four major historical events that, at the time, seemed to threaten the future of our system.

Here’s the result after each of those occasions.

And now, I’ll include an update for the three years since Sept. 11, 2001.

As you’ll see, in each case our system -- and our stock market, which is the barometer of the system -- did indeed survive and prosper.

*The first was Pearl Harbor, Dec. 7, 1941, arguably the first terrorist attack on America and the most deadly until Sept. 11. The economy was coming out of a depression, the stock market had been a volatile, gloomy place for over a decade, and Americans had every reason to fear.

The mood inspired President Roosevelt’s famous warning that we have nothing to fear but fear itself.

Would you have sold stocks then? If you had, it would have been a great mistake. Three years later the S&P 500 had racked up a total return -- price appreciation plus reinvested dividends -- of 81 percent.

*The second period of shock to the American psyche occurred when President Kennedy was assassinated on Nov. 22, 1963. It’s another date indelibly etched on the mind of the generation who watched events unfold on television.

No matter what your politics, it was seen as a threat to our future, and certainly to the stock market.

Would you have sold stocks then? If you had, it would have been a great mistake. Three years later, the market had a total return of 21 percent.

*The third historic moment was the first Gulf War, in August 1990.

Again, a nation sat in shock as bombs exploded, and Saddam Hussein predicted our sons and daughters would come home in body bags. In anticipation of the strike, the market declined.

Would you have sold stocks then? If you had, it would have been a great mistake. Three years later, the market had a total return of about 58 percent.

*And the fourth period, though it passed with slightly less notice, is marked by the first bombing of the World Trade Center, in February 1993.

Indelibly etched on the minds of New Yorkers and the financial center, it created the recognition that our system -- at least its physical structure -- was vulnerable right here in the United States.

Would you have sold stocks then? It would have been a great mistake. Three years later, the market had a total return of 57 percent.

Stocks after Sept. 11, 2001

At the time, I suggested that the defiant act was to buy stocks when the market reopened.

It was an emotional reaction -- but one also based on historical precedent. America has always survived and prospered. And those who bet against our free enterprise system have missed out on prosperity and success.

Well, the three-year total return of the stock market since then, according to Ibbotson Associates, was a gain of more than 11 percent.

Aren’t you glad you didn’t sell stocks then? It would have been a great mistake. And that’s The Savage Truth.

Terry Savage is a registered investment adviser, and appears weekly on WMAQ-Channel 5’s 4:30 p.m. newscast. Distributed by Creators Syndicate.

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