Provided By: Kim Provo

“This time it’s different’ are the four most expensive words
in the English language.”

— Sir John Templeton

At the height of the dot-com bubble in 1999, the growing chorus of technology true believers dismissed any suggestion that stock prices had reached unrealistic levels. They insisted that we were witnessing a “new paradigm” to which none of the old, conventional rules for establishing the fair value of a business could—or should—be applied. “This time it’s different,” they declared with a conviction that persuaded many who should have known better to hop on the wildly careening bandwagon.

We all know how that turned out. The tech-heavy Nasdaq index peaked at 5200 in March 2000. Today it sits at just over 1500. Many of the companies most enthusiastically embraced by investors in the midst of the 1999 – 2000 mania went belly-up before they ever earned a dime. In the end, the new paradigm was just a bubble and the old rules prevailed.

The sheer scale of the current economic and financial meltdown has, predictably, revived the “this time it’s different” story line. The irony is that this time it’s a bearish insistence that things are as bad as they’ve been since the Great Depression—and likely only to get worse. And just as they responded to the hype and irrational exuberance of almost a decade ago by buying stocks at any price, investors are responding to today’s profound pessimism by selling with abandon. In October, they withdrew a record $72 billion from stock mutual funds, fueling a 16.94% decrease in the S&P 500—the ninth worst month in the history of the index. By the end of the year, the S&P 500 had declined 38.49%, its worst performance since 1937.

So are things different this time? Well, as the statistics show, they’re certainly more extreme than anything most of us have ever witnessed. But that seems to be more a product of the excesses that created the current situation and the drastic measures being taken to remedy it than any fatal flaw in our economic structure or fundamental shift in the basic rules that govern financial markets.

If that’s true – and the old rules still apply – it is possible that this may very well be the greatest investing opportunity in a generation. Because as the market has fallen, stocks appear to have become more attractive, not less. Bargains abound—many well-capitalized and profitable companies now trade at lower prices relative to their earnings than they have in years. But investors gripped by fear and uncertainty not only aren’t buying, they’re continuing to sell.

There is one notable exception. Warren Buffet, regarded by many as the most astute investor of our time, announced in an October 17, 2008 editorial in The New York Times that he is actively buying American stocks. Why? In classic Buffet style, he explained that a simple rule dictates his buying: Be fearful when others are greedy, and be greedy when others are fearful. Bad news, Buffet asserts, is an investor’s friend—“because it lets you buy a slice of America’s future at a marked-down price.”

So even if you’re only able to invest $50 or $100 per month, it may be time to go shopping.
Of course, remember that risk is inherent in the market. There are no guarantees when investing, and there can be no assurance that your investments will not lose value. Past performance and historical information do not guarantee future success.

Kim Provo is a financial advisor at First Command Financial Services in Dover, Del. This article was written by First Command and is intended to promote the professional services of the company.

For more information or to schedule a consultation, please contact Kim Provo at
302.698.0472.