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Recent events will not have long term impact

"The stock market demands conviction; it victimizes the unconvinced."

This is an appropriate quote by the very successful money manager Peter Lynch.

As the fallout from the recent corporate slowdown and terrorist attack works its' way through the markets I would like to remind you that the price of generating long term wealth with equities is the emotional ability to withstand the occasional significant - but ultimately temporary - market decline. As the above quote suggests this requires conviction and courage when the markets fall as much as they have recently.

To help you understand the historical declines of bear markets and to see that what we are going through is not something new, I have attached a graph in pdf format that illustrates the % decline for the past 10 bear markets going back to 1946. As you can see, with the S&P 500 index today at 992 we have experienced a 36% decline so far from its' peak of 1552 which puts it slighly above the average decline of the past 60 years. I would like to reassure you that this recent decline is temporary and that the markets will go on to reach new highs with a resounding rebound in the future. Although we know that a rebound will come, unfortunately the information from an intellectual point of view as to when and why this rebound will happen is not available to us. But we do know that it will come. All we know for sure at this point is that the market is in fact presenting investors with one of the rare opportunities to invest at bargain prices.

While the temptation might be strong to sell and avoid the drop it is a well documented and proven fact that this cannot be done on any consistent basis. I therefore continue to recommend to resist the urge to react to all the bad news that you are seeing on a daily basis.

The terrorist attacks and downturn will unquestionably turn out to be a testimony to the resilience and strength of the American economy, financial markets and people. I am still very optimistic about the long term. The U.S. will continue to be the global leader in the R&D revolution and Canada's economy will benefit enormously from the coming economic rebound. There is no way that terrorist attacks, even of this magnitude, will take down the power base of the Western world.

If you have any questions or concerns please don't hesitate to call.

Gilles Latour

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