MARKET COMMENTARY BY JIM O’SHAUGHNESSY

Here are some fascinating thoughts from a market legend.

"MARKET COMMENTARY BY JIM O’SHAUGHNESSY: SEPTEMBER 2008
It’s time to take a collective breath.
Amid the Fed-engineered takeover of Bear Stearns by J.P. Morgan, the
collapse of Lehman Brothers, the nationalization of AIG and Merrill Lynch’s
rush into the arms of Bank of America, we need to ask ourselves “Why do we
invest in the stock market?” The answer is simple and straightforward: we
invest in the stock market because, given all the alternatives—from bonds
and t-bills to real estate and commodities—the stock market has
historically offered the best long-term performance—even when everyone is
afraid that the sky is falling and that the bottom is dropping out of the
market. If we compare all of these investments over rolling 20-year
periods and adjust for inflation, only stocks (as measured by a proxy for
the S&P 500) have never had a negative return.

An Historic Opportunity
It sure may not feel like it, but the market is presenting us with a rare
opportunity. In times like these, most investors panic and sell.
Behavioral economists have identified a consistent bias they have dubbed
regency bias, where investors project the current market conditions way
too far into the future. This causes them to seek safety from the
volatility instead of leading them to see the market decline as a gift
that allows them to buy stocks at vastly lower prices. Rational,
historically driven methods like those we use at OSAM dictate that you and
your clients must do the opposite. Successful investors study history.
They unglue themselves from the present and make decisions using
historical information that helps them understand what happened after
every other crisis. They understand and react to the present in terms of
its antecedents and what can reasonably be expected for the future.
Yesterday and tomorrow, as well as today, make up their now. By studying
what has happened after similar downturns in the past, informed investors
gain perspective, letting what they know transcend how they feel, and this
becomes an emotional pressure valve.

What you and your clients do right now will affect both of your tomorrows.
Urge them to do what I started doing in July and will continue to do over
the next few months—convert all of your cash earmarked for investment in
equities to investments in the stock market."