GRIDLEY

ASSOCIATES INC.

Financial Planning and Investment Management

As humans we are imbued with a number of basic, animal instincts that can influence our behavior, and not always in a positive way. One of our stronger instincts is the desire to cut and run when we sense danger, whether it be a physical danger or even financial danger. Unfortunately, giving in to this cut and run instinct in financial situations can frequently lead to bad outcomes.

There is no question that we are experiencing some of the worst markets in decades and it plays to our instincts to want to sell our stock and bond investments so as to minimize future, potential losses. Although this may well turn out to be the worst stock market and economy since the Great Depression, if we actually look at the data from back then, things weren’t as bad as we may think.

If you had invested $100,000 in the S&P 500 at the beginning of 1929, the year of the "crash", you would have faced 4 years of substantial market losses reducing the value of your investment to about $42,000. After 4 consecutive years of negative returns and an economy facing unemployment rates of over 20%, it would be understandable if you, like most investors, completely cashed out of stocks. Unfortunately had you done so you’d have missed the +54.0% return the S&P 500 enjoyed in 1933 in addition to the +47.7% and +33.9% returns that came later in 1935 and 1936. If you had invested your $100,000 at the beginning of 1929 and just held the position for 8 years, your patience would have been well rewarded. Your investment would have grown to more than $126,000. What’s even more impressive about that return is that it occurred during a period that saw actual deflation so the return in real, purchasing power terms was even higher. Here are the actual returns for the S&P 500 from 1929 through 1936*: