The Buckingham Report

“Get your facts first, then you can distort them as you please,” Mark Twain once said. Were he alive today, the famed American humorist might have been thinking about another of his famous quotations regarding the stock market - “October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” Of course, given the big downturn in the equity markets in May and June of this year, many investors may be thinking that Twain knew what he was talking about when it came to investing.

To be fair, Samuel Langhorne Clemens died in 1910 without 80 years-worth of modern market data at his fingertips via the excellent publication Stocks, Bonds, Bills & Inflation from Ibbotson Associates. This investing bible shows that the facts do not support the famous Twain stock market quotation. As we detailed in the June issue of The Prudent Speculator, 11 of the 12 months of the year have proven to be profitable on average for large-cap stocks and 9 of the 12 have been in the black for small-caps. And contrary to popular belief, the summer months have been among the best performing of the year, dating back to 1926.

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In a sense, however, one could say that Twain was accurate in his assertion that playing the market with a one-month time horizon is dangerous. In fact, in 38% (369 out of 960) of the monthly periods from 1926 through 2005, large-cap stocks have failed to appreciate. Over that same time span, small-cap stocks have been flat or down in 378 months, or 39% of the time.

We never invest for the short-term as the table below vividly illustrates that the longer stocks are held, the less risky they become. What’s more, a long-term oriented, three-to-five year outlook generally means that capital gains receive more favorable tax treatment, trading costs have a less significant impact on performance and undervalued stocks have time to reach their potential!

Clearly, staying the course in times of market turbulence can be difficult, but doing so has nearly always proven to be the right decision as, despite the inevitable ups and downs, equities have returned 10.36% to 12.64% per annum over the last 80 years. And, as a simple spreadsheet calculation will attest, substantial wealth can be accumulated when money compounds at those rates over the long-term.

 
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Mark Twain also said, “I am opposed to millionaires, but it would be dangerous to offer me the position.” In reality, in the fullness of time, the stock market offers nearly everyone that opportunity!

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Past Performance is no guarantee of future results.

The information contained herein is believed to be reliable. However, such information has not been verified by us and we do not make any representations as to its accuracy or completeness.

Opinions expressed are those of John Buckingham, which are subject to change without notice and are not intended to be a forecast of future events, a guarantee of future results, nor investment advice.

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About Al Frank Asset Management

Al Frank Asset Management, Inc. (AFAMI) is an Investment Adviser, registered with the Securities & Exchange Commission, is editor of The Prudent Speculator (TPS) newsletter, editor and publisher of The Prudent Speculator TechValue Report (TVR) newsletter, and is the Investment Adviser to two value oriented no-load proprietary mutual funds and individually managed accounts.

Al Frank Asset Management, Inc. is committed to assisting our customers build wealth. We are a leading resource for value-based investor information in the financial community, where we combine our simple, proven philosophy of buying under valued securities for their long-term appreciation with our experience, hard work, and intensive research to give you actionable investment information that can be used on a daily basis.