Consumer
Confidence
The Consumer Confidence Index has been in the news quite a bit lately, so I thought some information on consumer confidence and the market was in order.
General sentiment on the economy may fall to levels reflecting extreme pessimism or rise to levels indicating excessive optimism. The following chart of monthly consumer confidence levels illustrates the historical extremes.
Equity investors may experience similar swings in confidence, tempting them to deviate from disciplined investing strategies. The returns tables below show the compelling returns disciplined investors enjoyed by investing in times of uncertainty, and the less attractive returns for market participants who waited for periods of high confidence to invest.
Consumer Confidence Level
Conference
Board Monthly Survey
160 140 120 100 80 60 40 20 0
June 1967 - June 2003
Source: Bloomberg,
Annualized Index Returns From Confidence High/Low Levels
|
2 3 4 6 |
1 Year Later |
2 Years Later |
3 Years Later |
||
|
43.2, Dec. 1974 |
39.4% |
27.6% |
10.5% |
||
|
54.3, Oct. 1982 |
20.3% |
7.6% |
13.9% |
||
|
47.3, Feb. 1992 |
7.0% |
11.8% |
10.4% |
||
|
64.8, Feb. 2003 |
19.0%* |
|
|
*non-annualized return,
|
1 5 |
1 Year Later |
2 Years Later |
3 Years Later |
||
|
142.3, Oct. 1968 |
-6.6% |
-7.3% |
-0.5% |
||
|
144.7, Jan. 2000 |
1.1% |
-3.2% |
-8.0% |
Returns based on total returns for Dow Jones Industrial
Average. Past performance is no guarantee of future results. Indices are unmanaged
and are not available for direct investment. Investment assumes reinvestment of
dividends and capital gains. Taxes and other expenses were not accounted for.
An individual's actual results may vary.
As Sir John Templeton said:
The time of maximum pessimism is the best time
to buy, and the time of maximum optimism is the best time to sell.
Having a well disciplined investment strategy is the best way to achieve financial success.
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jpw@financial-architects.com
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