In the wake of the 9/11 terrorist attacks, investors recommitted themselves to investing in American companies.
It was the worst of times. The 9/11 terrorist attacks on the United States had a devastating impact on all facets of life. The economy, already vulnerable in part because of the bust of the dot-com bubble, entered, albeit briefly, into a recession. But it was also a time of unity, when Americans put aside their ideology and said, 'We’re not going to let this beat us. We’re going to get going about our normal course of business.”
“This was an absolutely unique and special (attitude) that unfortunately I haven’t seen repeated,” observed Lee Gordon, senior managing director, investment advisory for Mesirow Financial.
One month after the attacks, market research firm Spectrem Group conducted a survey of affluent investors regarding how the terrible events that day had impacted their investment attitudes and behaviors. These investors are defined as individuals with a net worth greater than $500,000, not including primary residence.
These findings provide a time capsule glimpse at the ways American investors struggled to manage their shattered emotions as well as their portfolios.
In what was the worst attack on U.S. soil since Pearl Harbor, two planes were crashed into the World Trade Center twin towers. The New York Stock Exchange, (of which one quarter of the victims were reportedly employees) closed for the third time in its history.
“Most people were resigned to the fact that from that day forward, the world had changed,” Gordon recalled. “There was nothing they could do about it because the markets were closed. There was nothing to do but just wait it out. But our clients were very realistic, very practical. They were more concerned about their families and their fellow citizens. Money was a secondary consideration.”
By Sept. 17, all the major markets were functioning. In the month following the attacks, the Dow Jones Industrial Average plummeted from 9605 on Sept. 10 to a low of 8567 on Sept. 26 before rebounding to 9345 on Oct. 24.
Americans rallied in many ways. One of these was a commitment to invest in American companies. More than half (52 percent) of investors at the time said they would express their patriotism in this way. Of these, 60 percent were ages 70 and older. Having lived through World War II and that epochal battle against fascism, it is not surprising they would be most enthusiastic about strengthening their commitment to American companies. Investors ages 55 or younger were moved by the attacks to buy and invest American.
Americans were urged by the nation’s leaders to return to their lives, and while 17 percent told Spectrem Group that they would curtail their consumer spending, 54 percent, no doubt gripped by that defiantly patriotic urge to show that their lives would not be disrupted further, said they would not.
The attacks also kindled a giving spirit. Affluent investors have traditionally been large charitable contributors. Prior to 9/11, more than 60 percent had increased their donations over the past five years. Post 9/11, more than a quarter (28 percent) said they would give more to charitable causes. Of these, nearly half (46 percent) were younger than 55. More than a third (35 percent) had a net worth of less than $1 million.
Overall, 43 percent - up from 33 percent the previous June - said they were optimistic about the economy, with nearly three-quarters stating that they would not change their investment behavior. Of these, those age 70 and over, who most likely already had a conservative portfolio allocation were the most likely to express this attitude. More than half forecast that the stock market would improve, no doubt driven by the feeling that the country would rally in answer to its attackers.
What a difference a decade makes. Investor psychology, Gordon noted, is at a low point following the bruising battle over whether to raise the debt ceiling, followed by the first-ever downgrade of U.S. debt and the subsequent market sell-off. “A 180 (from the mood following 9/11),” Gordon said. "The dialogue amongst clients was, 'We’re Americans first. How are we going to move forward?’ The dialogue in August is that there is absolutely no faith in Washington and that either side has any clue knows how important it is to solve our problems.”