THE FOLLOWING IS AN ESSAY I COMPILED IN THE DAYS AFTER THE SEPTEMBER 11, 2001 ATTACKS.   WHEN ONE IS PREPARING TO ENTER THE INVESTMENT INDUSTRY, WE AREN’T TOLD WHAT TO DO IF TERRORISTS HIJACK AIRPLANES AND THEN FLY THEM INTO BUILDINGS IN NEW YORK CITY AND WASHINGTON, D.C.

AFTER THE EVENTS OF THAT DAY, I KNEW I HAD TO MAKE CONTACT WITH MY CLIENTS.   “STAY INVESTED” DIDN’T SEEM LIKE GOOD ADVICE (ESPECIALLY BECAUSE I WASN’T CONFIDENT IT WAS PROPER ADVICE).

WHAT I DID WAS COMPARE THE PERFORMANCE OF THE U.S. STOCK MARKET (AS REPRESENTED BY THE NO-FEE, UNMANAGED S&P 500) DURING TIMES OF NEGATIVE WORLD AND NATIONAL EVENTS.   THIS ESSAY IS A SNAPSHOT TAKEN DURING A DIFFICULT TIME IN AMERICA.   THE HISTORIC EVENTS AND THE MARKET PERFORMANCE ARE LOCKED IN HISTORY.   SOME OF THE OTHER SECTIONS CONTAIN MY INVESTMENT RECOMMENDATIONS AT THE TIME—PLEASE SEE THE ACCOMPANYING NOTES.

September 20, 2001

To all interested parties:

There is no easy or proper way to start this document.   Instead of spending time on an interesting introductory paragraph or worrying about the format, I want to get this information in front of you as soon as possible.   I am going to sacrifice style for substance.

Of all the careers I could have chosen, or that could have chosen me, I find myself in the business of investing money.   Part of my self-adopted duties is to educate clients about the history, mechanics and true workings of the investment industry and to provide them with effective communication on relevant events.

Just as I am in the investment business, you have money invested.   It is my responsibility to write this essay and it is your responsibility to review and digest the information below.

Throughout history, there have been national and international crises that have had an immediate impact on the stock market.   The short-term decline in market prices can most often be attributed to investors who sell out of their positions in spite of their knowledge of the history of the markets and investors who sell because they think they are smarter than the market.

You are about to learn the history of the market during and after various national/international events in the information presented below.   It is also vital for you to realize that no group of investors has proven to be smarter than an orderly, established market where the flow of information and statistics is unimpeded and relevant facts are not left covered.   The price of an investment may fluctuate above or below its value in the short-term but will become equal in the long-term.

I am going to present this information in three sections (NOTES ADDED IN APRIL OF 2022)

Section One

The following chart lists a national/international event, the dates that covered the event (which is somewhat subjective), the percentage change in the DJIA over the event dates and the percentage change of the DJIA 126 days after the event dates.

(Source: Touchstone Funds)

The median market decline among these, and nineteen other adverse events, was a negative 4.6%. The performance of the DJIA, 126 days later, was a 12.1% increase.

Section Two

I am not using this document to promote the track record and expertise of the American Funds. However, one of their flagship funds, The Investment Company of America, had its inception on January 1, 1934 and has been invested in the stock market during every one of the events listed above.   Listed below are four events that had an immediate impact on the stock market.   The performance of a $10,000 investment into ICA on the day of the event ten years after is reviewed.

Event                                 Date                                        $10,000 invested into ICA 10 years later (at full sales charge)

Pearl Harbor                   12/07/41                                  $34,728 (13%+ Average Annual Return)

JFK Assassination        12/22/63                                  $22,945 (8.5%+ AAR)*

October 1987 Plunge    10/19/87                                  $44,269 (16%+ AAR)

Iraq Invades Kuwait       08/02/90                                  $41,882 (15.25%+AAR)

*The performance of the stock market in the last four years of this ten-year window was negatively impacted by a substantial increase in the inflation rate.   The abnormal CPI caused market performances below the historical average.   The AAR of the market from 1950-2000 was 14.32%; from 1969-1973 the AAR was 2.49%.

As of 08/31/01, ICA, a growth & income fund, was holding 17.9% of its portfolio in cash.

The average investor in an American Funds portfolio, even if invested 100% for growth, has between 9% and 11% of their money in cash.   The ability and willingness of the American Funds to hold cash will make you money from this point forward.

WE ARE PRODUCTS OF OUR TIMES.   I GRADUATED FROM COLLEGE INTO THE TEETH OF THE WORST RECESSION SINCE THE 1930S.   MY INABILITY TO FIND A JOB WAS MADE EVEN MORE DIFFICULT BY A PERIOD OF HIGH INFLATION AND HIGH UNEMPLOYMENT.   THAT TIME IN MY LIFE—LONG AGO AS IT IS—IS STILL A PART OF ME AND HOW I APPROACH BUSINESS AND LIFE.   THE FOLLOWING SECTION HAS BEEN INFLUENCED BY MY OWN EXPERIENCES AFTER GRADUATING FROM DUQUESNE UNIVERSITY.

Section Three

I want to start this section with a tie-in to the previous one.   The inflation problem has been solved by the government.   The growth of the money supply will never get to the point where it did in the 1960’s and 1970’s which lead to the high inflation of the 70’s and early 80’s.   This control of the money supply means that stocks will continue to outperform fixed income investments of any type. (I WOULDN’T WRITE THAT SENTENCE AGAIN; TOO SIMPLISTIC)

The stock market is different today than ever before.   There is more consistent flow of relevant information, less outright stock scams (the SEC was only eight years old at the time of the Pearl Harbor attack) and more understanding of volatility.   The positive impact of 401(k) plans, dollar cost averaging programs, etc. has enhanced the value and price of dividend-paying stock issues. Today’s stock market is different than the market of previous generations.

If the events of last week do push the economy into recession, it will be a recession much milder than the one I graduated into in 1981.  That recession was created by the Federal Reserve Board to solve the inflation problem that beset the country in the 1970’s. And it was that recession that paved way for the economic expansion that we enjoyed over the last fifteen years.

During the last major recession companies had not yet discovered the benefits of “just-in-time” inventory management, the service economy and government sector was a smaller percentage of the overall GDP than it is now and recession meant something different than it does today. From 1900 to 1982 the economy was in recession 30% of the time.   From 1982 to 2000 the economy was in recession only 4% of the time.   This dramatic decrease in recession is a direct result of more prudent fiscal policy and the changes in our economy.

Right now, the investment industry and investment salespeople are telling you to stay invested. The industry is telling you that oftentimes without knowing why.   Here’s why:

Also: I don’t know what the relevance or connection to the following statement is, but I think it belongs here: The Y2K story was a non-story in regard to the stock markets. There was intense media attention and investor speculation about what was going to happen for the entire year leading up to 12/31/99.   The speculation became totally irrelevant on 01/01/00.

THIS SECTION CONTAINS A RECOMMENDATION MADE MANY YEARS AGO AND WAS GENERAL IN NATURE.   ANY INDIVIDUAL’S INVESTMENT RECOMMENDATION IS BASED ON AGE, NET WORTH, LIQUID WORTH, TIME TO RETIREMENT, INVESTMENT KNOWLEDGE, RISK TOLERANCE, ETC.

My recommendations are going to be the same ones given in the newsletter dated March 29, 2001:

AT THE TIME OF THE ATTACKS, I WAS EXTREMELY CONCERNED ABOUT THE IMMEDIATE FUTURE.   THE FOLLOWING TWO SENTENCES WERE WRITTEN MANY YEARS AGO BUT THEY CAPTURED EXACTLY HOW I FELT IN THE DAYS AND WEEKS AFTER THE EVENT.

Lastly, I wish I had the writing skills to express how I feel about what happened to our country last week and what the future will bring.   I will end this paper by stating I feel exactly how you do.

Submitted By:

Ken Kaszak

Registered Representative

412-390-1122

9/20/01

(ORIGINAL DATE; REVISED APRIL 8, 2022)