MARKET COMMENT
This Time It's Different

By Maynard Paton (TMFMayn)
January 8, 2003

This time it's different.

According to legendary investor Sir John Templeton, those four words are the most dangerous in the English language. A few years ago, Sir John's wisdom would have rescued many punters before the 'new economy' eventually succumbed to the old rules of investment. Investors presently face a similar, if reversed, dilemma.

Terror attacks, tension in the Middle East, an economic slowdown, record consumer debt, a housing bubble, crooked boardrooms, Equitable Life, shares down 42% over three straight years. Who'd invest in the stock market right now?

But consider 1940: Rationing introduced, Germany invades France, 300,000 allied troops rescued at Dunkirk, Blitz begins, 24,000 civilians killed, Buckingham Palace bombed, Coventry almost destroyed. Market performance between November 1936 and June 1940: down 61%.

And consider 1974: Inflation tops 25%, devaluation of sterling, oil price quadruples, petrol rationed, widespread industrial unrest, three-day week, secondary banking crisis, two general elections. Market performance in 1974: down 50%.

Compared to the events of 1940 and 1974, today's investors have it easy. Sure, there are plenty of military, political and economic concerns out there. But the stock market has come through far more disturbing times before and still prospered thereafter. If your investment horizon runs into decades, remember:

* The market has beaten cash in all but 1 of the 65 20-year periods since 1918, and;
* When cash did win over 20 years, it was by just 0.3% per annum.

Still have too many worries? Still think shares remain too risky for the long term? This time it's different? Not by a long way.

More: Why The Market Beats Cash | Why You Should Still Invest