November 6, 2012

Hurricane Sandy Effects on The Stock Market + Driverless Cars in California


As the week wore on, the devastation from Hurricane Sandy became ever more apparent. And, while we talk about the financial markets in this commentary, we know that what happens on Wall Street pales in comparison to the tragedy and hardship facing many people in the northeast. Our thoughts and prayers go out to them.

In addition to the human toll, Hurricane Sandy caused the New York Stock Exchange to close for two days. This closure reminded us of a quote from Warren Buffet who said, "I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."

This quote contains a couple important lessons:

  1. Think long term. Rather than flipping investments on a frequent basis, it makes sense to approach investing with a five-year or longer time frame.
  2. Don't check your investments daily. Imagine you planted some tulip bulbs. Would you pull them out everyday to check and see if their roots grew? Likewise, give your investments time to grow.

Keep in mind that stock prices tend to fluctuate much more than changes in the intrinsic value of the underlying companies, according to Investopedia. Unfortunately, these daily fluctuations often scare people into making bad investment decisions. To overcome this tendency, try to ignore the daily noise and take comfort in knowing we are focused on monitoring any changes to the long-term, underlying value of your investments.

And, yes, it's finally election week. The good news... no more annoying robo calls and attack ads!

Data as of 11/2/12 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 0.2% 12.5% 14.2% 10.7% -1.3% 4.5%
DJ Global ex US (Foreign Stocks) 0.8 8.8 4.6 1.7 -7.0 7.0
10-year Treasury Note (Yield Only) 1.7 N/A 2.0 3.4 4.3 4.1
Gold (per ounce) -1.8 7.0 -3.3 16.6 16.2 18.2
DJ-UBS Commodity Index -1.8 -0.2 -4.9 1.8 -5.3 3.1
DJ Equity All REIT TR Index 2.0 16.7 19.3 22.3 3.4 11.8

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron's,, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

"TODAY, WE'RE LOOKING AT SCIENCE FICTION BECOMING TOMORROW'S REALITY," said California Governor Jerry Brown in late September at Google's headquarters in Mountain View, CA. So, what "science fiction" was the governor referring to and what are the investment implications?

About 120 years ago, a German mechanical engineer named Karl Benz coupled an internal combustion engine with a chassis and four wheels. Today, we know it as the automobile. While the internal combustion engine was the transforming technology that made the modern automobile possible, we don't define, value, and think of cars in terms of how well they process gas. Instead, we think of what cars can do for us.

Cars dramatically changed our lifestyle. They allowed the rise of suburbs. They enhanced the family vacation. They played host to many dates and first kisses. They created millions of jobs in road construction, manufacturing, dealerships, repair shops, and, in fuel exploration, processing and distribution.

Likewise, Governor Brown's announcement of a new law making it legal for driverless - yes, driverless - cars to travel on public roadways in California could dramatically reshape the impact cars have on our lives.

Here are a few ways society could change:

  1. With no need for steering wheels, pedals, and other manual controls, manufacturers of those parts would be out of luck.
  2. With no driver and very few road accidents, say goodbye to expensive car insurance policies.
  3. With few road accidents, say goodbye to most of the roughly 2 million hospital visits per year in the U.S. caused by car accidents (many lives saved!) and say goodbye to all the time and resources spent by doctors, nurses, and staff, devoted to helping these accident victims.
  4. Say goodbye to taxi drivers and limo drivers and hello to a driverless "Zipcar" or similar type service.
  5. Say hello to electronics and software companies who will provide the sensors and computing power needed by these cars.
  6. Say hello to an expanding suburb and rising suburban housing prices as the driverless car will make a long commute more palatable since you can work or play while the car goes on its merry way.
  7. Say hello to increased mobility for people with certain disabilities.
  8. Sources: The Economist; Forbes

The driverless car is no longer science fiction. Google already has a fleet of them and some of its employees "drive" them to work.

From an investment standpoint, this is an example of the type of deep research and thinking we do on your behalf as we strive to meet your goals and objectives.

Weekly Focus - Think About It...

"The best way to predict the future is to create it."

—Peter Drucker, management consultant, educator, author

Best regards,
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management

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  • The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
  • The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.
  • The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
  • This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
  • Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.
  • The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
  • The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
  • Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
  • Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
  • Past performance does not guarantee future results.
  • You cannot invest directly in an index.
  • Consult your financial professional before making any investment decision.

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