Dear Investor,

Without question, the sub prime loan and related credit market problems are a “crisis” with which we are bombarded 24 hours a day, seven days a week. Now, we are experiencing the subsequent “panic” and doom-and-gloom talk that comes along with this calamity. The fact that this is an election year means the media coverage is even more intense.

What the news coverage is often not telling us, however, is that we have experienced markets like this before — and some far worse. Following are some examples of past crises:

Years     — Banking Crisis   

1974-75  — 75 percent of all brokerage firms failed or merged

1981-83  — More banks and savings and loans collapsed during these two years than any time since the Great Depression

1990-91 — 1,500 Savings and Loan Associations failed or merged

2007-08 — 15 U.S. banks have failed

Despite these crises, the Dow Jones Industrial Average has gone from only 577 in 1974 to approximately 10,300 today, an 18-fold increase. It may seem like that huge increase over the past 34 years would have been enjoyable, but, in reality, there were plenty of crises and events to worry about each and every year all the way up.

What we know from historical observation is this: the point when the market turns irrational or overly pessimistic is often the time when investors head for the exit rather than staying in the game. Remember John Templeton’s words, “Investors should buy on maximum pessimism.” The past has shown us that, unfortunately, these investors have suffered through the downside but missed most of the upside because it occurred so quickly.

Individual investors possess something very important that Wall Street does not: longer time horizons. While Wall Street focuses on minutes, hours and days, individuals have the opportunity to focus on years and decades. Individuals are investors, not traders. That makes investing easier for us, as we have a plan to follow. However, we face the difficulty of ignoring the lure of day-to-day, month-to-month trading, which distracts us from what we are actually trying to achieve.

While the financial headlines we have seen of late have indeed been frightening, we have the luxury of choosing to either follow the panic or focus on our long-term investment objectives and work with our advisor to make any necessary adjustments over time. After all, it is our long-term investment objectives that should dictate how our investments are allocated, not the day-to-day movements of the markets.

Over the past 34 years, we have seen market panics, booms, bubbles, and crises. Each event — positive or negative — has created its own opportunities for investors. But to take advantage of those opportunities in the market, we had to continue to be invested in the market.

Sincerely,

Your investment advisor

(Many readers let me know that there was an error in last week’s column. I submitted the following, “Today that number is about two out of one hundred.”  Somehow, it was typeset as “2 of 10”. Yes, I do know that “one-fifth” is the same as “2 of 10”. Amazing how one zero changes things! I wish those in government understood the importance of a few zeroes.

Notable quote: “Close scrutiny will show that most ‘crisis situations’ are opportunities to either advance, or stay where you are.” — Maxwell Maltz

Tom Mills is a registered investment adviser and certified financial planner. If you have questions or topics, you may call or write him at 1030 Seminary St. Suite D, Napa, 254-0155, fax 254-0158 or e-mail suntrm@aol.com.