Greek Crisis: This Too Shall Pass
February 23, 2012
Jerry Palmieri, Vice President and Sr. Portfolio Manager for Franklin Equity GroupÂ®, doesnâ€™t worry too much about whether the Greek drama dominating daily headlines will turn into global market tragedy. A veteran of Franklin Templeton since 1965, heâ€™s survived to tell the tale after more than four decades of market ups and downs. His wizened view summarized:
- Market ups and downs are to be expected.
- U.S. market, economy will survive the Greek debt crisis. â€ťThings will work out.â€ť
- Market timing not the ticket to long-term investing success.Â
Ups and Downs Are To Be Expected
On â€śBlack Monday,â€ť October 19, 1987, the Dow Jones Industrial Average plunged more than 508 points, or roughly 22%.1Â Following the market plunge, Palmieri, a longtime fund manager, earned the respect of his peers for his calm demeanor and diligence during a time few market veterans could ever forget. During one of the worst crashes in the history of the market, Palmieri maintained his resolve that despite the crash, the equity market was still the place for investors to be over the long-term.
â€śWhen I look at the market, I expect it will sell off, and I expect it will go up. And thatâ€™s exactly what happens. Sometimes it goes up more than other times, sometimes it goes down more than other times. It doesnâ€™t particularly surprise me. Iâ€™m used to it. Iâ€™ve always compared the market to other alternatives you have with your extra money. When you look at it that way, you start to realize what a marvelous thing the stock market is.â€ť
Of course, some downturns can last longer than others, such as the 2007 â€“ 2008 financial crisis that ignited a U.S. recession. Palmieriâ€™s focus then was the same as it is today: on the long-term.Â â€śYou have to be patient. Patience is very important in the investment process.â€ť
To illustrate what he is talking about, you can see in the charts below how volatile the S&P 500 has been on a monthly basis from 1986 â€“ 2010, and how the market has fared when looking at cumulative return.
Source: Â® 2012 Morningstar. Represents Standard & Poorâ€™s 500 Index total monthly percentage returns, assuming reinvestment of dividends. This index is unmanaged and unavailable for direct investment. Chart reflects past results and does not predict future results, nor does is represent the performance of any Franklin Templeton fund.
Source: Â® 2012 Morningstar. Shows performance of S&P 500 Index, with a hypothetical starting value of $10,000, assuming reinvested dividends, starting on 12-31-86. This index is unmanaged and unavailable for direct investment. Chart reflects past results and does not predict future results, nor does it represent the performance of any Franklin Templeton fund.
Greek Debt Crisis
That all being said (and seen), Palmieri isnâ€™t losing his lunch over the Greek debt crisis, which has sent the U.S. market on a rollercoster ride over the past few months. His take is that this, too, shall pass, noting that in terms of the global economic output, Greece is rather small.2Â In his opinion, regardless of what happens in Greece, the U.S. economy, and the market, will survive. He remains optimistic that there are always going to be compelling areas to invest in.
â€śThere are certainly plenty of problems, but I think things will work out; they always have.â€ť
Itâ€™s Not All in the Timing
Thatâ€™s not to say things will always be easy. Inevitably, there will be more bumps in the road. One last piece of advice Palmieri has for investors in navigating these bumps: Donâ€™t try to be a market timer. It may periodically work out for some professionalâ€“and luckyâ€“traders, but he says jumping in and out of the market at just the right time is an extremely challenging endeavor, and one that can also be costly. Finding value plays and growing businesses, and sticking with them, is more his style.
As that other industry veteran, Sir John Templeton, said: â€śThe time to sell an asset is when you have found a much better bargain to replace it.â€ť
Want to learn more about surviving volatility?Â Take a look at â€śUnderstanding Riskâ€ť on franklintempleton.com.
What are the Risks?
Historically, the fund has focused on larger companies. The fund may also invest in small, relatively new and/or unseasoned companies, which involves additional risks, as the price of these securities can be volatile, particularly over the short term. In addition, the fund may invest up to 40% of its net assets in stocks of foreign companies, which involve special risks, including currency fluctuations and economic as well as political uncertainty. The portfolio includes investments in the technology sector, which has been one of the most volatile sectors of the market. These and other risks are described more fully in theÂ fundâ€™s prospectus.
1Â The Dow Jones Industrial Average IndexSM is calculated, distributed and marketed by Dow Jones Indexes, the marketing name and a licensed trademark of CME Group Index Services LLC , and have been licensed for use.Â â€śDow JonesÂ®â€ť, â€śDow Jones Indexesâ€ť and â€śDow Jones Industrial Average IndexSMâ€ť are service marks of Dow Jones Trademark Holdings, LLC.Â â€śCMEâ€ť is a trademark of Chicago Mercantile Exchange Inc.Â All content of the Dow Jones Industrial Average Â© CME Group Index Services LLC 2012
2Source: Copyright Â© 2012, The International Bank for Reconstruction and Development Â / The World Bank.Â All Rights Reserved.
(c) Franklin Templeton