Investing According to Garp

Capital Markets Not Forever Dead

Saturday, July 24, 2010
By Kevin Bourke (Contact)

In the movie The World According to Garp, Garp (played by Robin Williams) and his wife are shopping for a home when they hear a faint buzz in the distance. As the volume grows, they see a small plane heading straight toward them. They duck as the plane passes low overhead, then watch with open mouths as the unfortunate pilot crashes directly into the second floor of the house.

Garp turns to the real estate agent and says, “We’ll take the house.”

“Garp!” His wife thinks he’s lost his mind.

He reassures her, “Honey, honey, the chances of another plane hitting this house are astronomical. It’s been pre-disastered. It’ll be safe here.”

The line is designed to elicit a laugh, but there’s a trace of wisdom. Today, investors have been beaten up pretty badly by one of the worst investment climates in history. While we might be inclined to believe that the stock market will always be bad, really this is not likely the case. I believe it will take more attention and skill going forward to make, and preserve, money, but the capital markets are not forever dead. As Garp said, the chances of us experiencing another disaster (that rivals the Great Depression), while not astronomical, do seem unlikely.

We often make decisions based on emotion, and in some cases this is a good thing. Who would marry someone they didn’t love? But when it comes to investing, emotions are our downfall. Every. Single. Time. So rather than allow our feelings about the recent performance of the capital markets to determine our investment habits, let’s look at a simple fact.

The stock market has always recovered from pullbacks, crashes, corrections, and so forth. Since the birth of the stock market in the United States in 1792 when 24 businessmen signed the Buttonwood Agreement on Wall Street, the stock market has come back and moved on to ever higher highs. Sometimes it took longer than others, but it has always come back.

Will the capital markets recover from this recent pummeling? Already we seem to be seeing some recovery in the economy and the capital markets. So if you’ve been scared out of the markets and are experiencing minimal, if any, returns on your principal, what should you be doing?

Every person’s situation is unique, but consider this: Inflation and taxes are going to continue to erode your purchasing power, and earning current interest rates on your principal is not likely to help much. You must look outside low-yielding accounts if your principal is going to have any chance of meeting, or beating, inflation and taxes. And that means assuming some risk, exposing your money to investments that will fluctuate in value and giving you the opportunity to watch your investments grow.

At the moment, it feels like the capital markets are bouncing around, but some day they will ratchet up, just as they have for hundreds of years. When it happens, be sure you’re ready.

Start from scratch, review your goals, risk tolerance, asset allocation, time horizon, and so forth, but think like Garp. Realize that a once-in-a-lifetime event is just that. Once in a lifetime.

Kevin Bourke is a registered principal with and securities offered through LPL Financial, member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

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