“I have but one lamp by which my feet are guided, and that is the lamp of experience. I know of no way of judging the future but by the past.”
—Patrick Henry, 1775

Our recommendations are based on our observations of historical economic data. This is not to suggest that history will always repeat, but we have found sufficient evidence to identify classes of financial assets with unique and valuable patterns of risk and return.

We believe it is also useful to occasionally review the history of the stock market itself. The table on the following page provides a summary of stock market cycles since 1929. The table shows that the current downturn in the market is the most extreme, in terms of magnitude and duration, since 1932.

However, it would be unwise to bet that either the trend will continue or that a turnaround is imminent. As we pointed out in the August 2002 INVESTMENT GUIDE, a historical assessment of the market’s tendency to “revert to the mean” suggests that the Dow could fall as far as 4,500. On the other hand, the market’s swoon, though as deep and as long-lasting as that of the Great Depression, is occurring amidst an overall economy that is vastly stronger than that which prevailed in 1932.

The lesson to be drawn is that cycles are inherent in the market, and that investors with a truly long-term horizon should stay with their plan, and not be tempted by either scenario. Our “lamp of experience” suggests that your feet should not stray from the path you laid out when you established your financial plan. Our recommended allocations for investors of different circumstances are provided on page 76.

Also in This Issue:

Investment Guide – Online?
Tax Tips for 2002
Smart Tax-Swapping Strategies
Quarterly Review of Investment Policy
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield