Listen up, are you paying attention? Stuff is boiling over around the world. It’s time you prepare accordingly. In talking with a client yesterday, we discussed whole life insurance. I don’t love it. I much prefer term life which we both agreed on (for me, I just want it until my kids are out of college). He said, “You know, that’s exactly what Peter Lynch used to recommend.”
You remember Peter Lynch, don’t you? Author of One Up on Wall Street and famed manager of the Fidelity Magellan fund? His name was legendary in the halls of Fidelity when I was working there (Fidelity #1). In thinking about Mr. Lynch, I read this interview he gave with PBS back in the mid-90s. He was talking about 1990—a year that ABSOLUTELY reminds me of today—one that he refers to as the scariest time ever to be a money manager.
Here’s part of the interview transcript:
Q: Was that the most scared you ever were in your career?
A: ’87 wasn’t that scary because I concentrate on fundamentals. I call up companies. I look at their balance sheet. I look at their business. I look at the environment. The decline was kinda scary and you’d tell yourself, “Will this infect the basic consumer? Will this drop make people stop buying cars, stop buying houses, stop buying appliances, stop going to restaurants?” And you worried about that.
The reality, the ’87 decline was nothing like 1990. Ninety, in my 30 years of watching stock very carefully, was by far the scariest period.
Q: What was so scary about 1990?
A: Well, 1990 was a situation where I think it’s almost exactly six years ago approximately now. In the summer of 1990, the market’s around 3000. Economy’s doing okay. And Saddam Hussein decides to walk in and invade Kuwait. So we have invasion of Kuwait and President Bush sends 500,000 troops to Saudi to protect Saudi Arabia. There’s a very big concern about, you know, “Are we going to have another Vietnam War?” A lot of serious military people said, “This is going to be a terrible war.” Iraq has the fourth largest army in the world. They really fought very well against Iran. These people are tough. This is going to be a long, awful thing. So people were very concerned about that, but, in addition, we had a very major banking crisis. All the major New York City banks, Bank America, the real cornerstone of this country were really in trouble. And this is a lot different than if W.T. Grant went under or Penn Central went under. Banking is really tight. And you had to hope that the banking system would hold together and that the Federal Reserve understood that Citicorp, Chase, Chemical, Manufacturers Hanover, Bank of America were very important to this country and that they would survive. And then we had a recession. Unlike ’87 you called companies, in 1990 you called companies and say, “Gee, our business is startin’ to slip. Inventories are startin’ to pile up. We’re not doing that well.” So you really at that point in time had to belief the whole thing would hold together, that we wouldn’t have a major war. You really had to have faith in the future of this country in 1990. In ’87, the fundamentals were terrific and it was — it was like one of those three for two sales at the K-Mart. Things were marked down. It was the same story.
Action Line: When stuff is boiling over you need to take action to secure your finances. Don’t let inertia paralyze you into doing nothing. I’m here to help.
E.J. Smith - Your Survival Guy
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