Dennis Smith
Since Sept. 11, I have been working with the New York City firefighters every day. I do whatever I can at the site of the World Trade Center, and then I spend time raising money for the fire and police families. I have been asked to write a book about it from the firefighters’ point of view, what they have been through, what they have suffered. It is a terrible time. The worst time.
Our President says that we must try to live a normal life, and I know this is true. I know too that you must still continue to be interested in your financial well-being. The stock market fell sharply in the week after the market reopened; I read about the fear of flying and layoffs of 50,000 pilots and flight attendants. The economy does not look good for the short term, but we are a very strong nation and our economy’s strength will return soon. If history is any lesson it will be robust. Personally, I have not sold into the downturn, and I advised my family to hold on as well.
Because I do not have time to think about these important financial issues for the next two months, I have asked my business partner and close friend, Jack Mayberry, the chairman and chief investment officer of Core Asset Management, to write our financial column to give his perspective on the effect of this tragedy on our portfolios.
Jack Mayberry: The attacks on the World Trade Center and the Pentagon came at just about the worst possible time for the U.S. economy and the stock market. By Sept. 11, the United States had been slipping into recession and the stock market had fallen to its lowest levels in three years. Air travel came to a near standstill and many industries, from tourism to semiconductors, shuddered to a halt. The stock market, having been closed for four days after the attacks, reopened on Sept. 17 and suffered its worst week in 60 years. In the weeks since Sept. 21, the stock market has begun to rally again.
What are the prospects for the economy and our personal portfolios?
History gives some guidance in considering the effect on the stock market; our own feelings suggest answers about the economic impact. First the economy: For a year before the Sept. 11 attacks, spending by businesses on technology hardware and software had been slowing. Until the summer, the consumer side of the economy had been holding up well, including auto and home sales as well as retail spending on smaller items. However, as layoffs spread, consumer confidence and spending began to fall. As the stock market declined further in recent months, individual investors saw (and felt) their wealth shrinking and they began retrenching.
Then suddenly, out of the clearest of September skies two jets flew into the towers. The New York City firefighters and Dennis rushed downtown to rescue the people in the World Trade Center; they were soon joined by firefighters from around the country. All the rest of us across the country and the world sat in shock in front of television sets. Going to the mall, to the auto showroom, to the theater was now almost unthinkable. People and their wallets stayed at home. While the smoke was still rising from Ground Zero, tens of thousands of layoffs of pilots, flight attendants and other airline workers were announced. The slowdown has not yet been measured by the economists, but we all know that the great engine of the American economy missed a few strokes in September.
Poor prospects for the economy and political uncertainty about U.S. retaliation, possible war and future acts of terrorism cast a cloud of doubt and fear over the stock market when it reopened. We believe that this September will be seen to have been the period of maximum stress on the economy and on the stock market. History shows us that crises like the present represent temporary interruptions in the progress and growth of the United States.
During the last one hundred years, the United States has fought long and costly wars with uncertain outcomes. America has suffered a major economic depression and smaller periodic recessions. Americans have endured political crises including assassinations, successful and attempted, of our presidents. But through this century and despite these serious problems, the economy of the United States has grown enormously and the value of America’s productive enterprises has grown with the economy. Ownership of America’s great companies, directly through the ownership of stock and indirectly through mutual funds and pension plans, has provided Americans with the firm foundation for building long-term wealth.
The political problems will be resolved, the economy will resume its growth and the bear market in stocks will end. It is certain that all these things will happen; it is impossible to know just when. Because we know that the market will again rally, but we cannot know when it will begin its rally, we investors should maintain a disciplined approach.
For long-term growth, ownership of stock in good companies was the key before Sept. 11. It is just as important now. A portfolio holding a reasonable amount of financially strong and growing companies (whether directly or through mutual funds) was a good portfolio before Sept. 11. The same portfolio is a good one now, as well.
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About the Author - Dennis Smith
Dennis Smith is the founding editor of Firehouse Magazine and the best selling author of
Report From Engine Co. 82 and other books. He has completed the federal Series 7, Series
63 and Series 65 exams and is a licensed financial advisor. Dennis Smith will be providing
some financial insight beginning with the January issue of Firehouse Magazine, as well as
authoring regular on-line commentary for Firehouse.com.
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