In 1897, eight-year-old Virginia O'Hanlon was wrestling with personal doubts about the existence of the jolly man from the North Pole who whisks into town every Christmas to bring dolls and skates to good little girls and boys. She asked her father about it, but he was a little evasive on the subject. In her family, whenever any doubts came up as to how to pronounce a word, or some historical fact was in dispute, they would write to the question & answer column in the New York Sun. Virginia's father would always say, "If you see it in the Sun, it's so."

Armed with this confidence, young Virginia wrote to The Sun to find out the truth. Her letter found its way into the hands of veteran editor Frank P. Church. He felt burdened to reply publicly to Virginia's inquiry on this sensitive matter, and to do so truthfully. His carefully written editorial, "Yes, Virginia, there is a Santa Claus" is now a beloved classic. In it, he assured Virginia that, "Santa Claus exists as certainly as love and generosity and devotion exist. The world would be intolerably dreary without Santa Claus. The most real things in the world," he wrote, "are those that neither children nor men can see. No Santa Claus? Thank God he lives and lives forever. A thousand years from now, Virginia, nay, 10 times 10,000 years from now, he will continue to make glad the heart of Childhood."

Letting Go

Frank Church did a masterful job of answering Virginia's concerns about the icon of the Christmas spirit. I am not sure that I could be as gracious if a latter-day grown-up Virginia were to ask me whether the '90s bull market was a reality upon which she could count. As a matter of fact, "Virginia" does ask me regularly. She is that prospective retiree who doesn't want to work five more years just because John Bogle suggests that the market's P/E will decline and stock investors will collect just 3% a year. What can I say to her if I think Bogle may be right, or Peter Bernstein, who thinks Treasuries may earn as much as stocks, or Robert Schiller, who sees negative stock returns for the next five or even 10 years?

Maybe I could write: "Yes, Virginia, bull markets do exist, just as surely as our collective hopes for a better life. They are a piece of the American Dream. The world would be intolerably dreary without bull markets. The one you have come to know and love may take a little rest, because even bulls need their beauty sleep. But he will be back. And what if it takes a few years? That is nothing in the grand scheme of life. Over the next thousand years, there will be bull markets aplenty. You will tell your children and your grandchildren about the generosity of the bull market and they, too, will come to believe and enjoy in their day."

Maybe that would help Virginia cope with the shock of discovering that the 1982-2000 bull market has run its course, and it might help her keep the faith that one day the world will know again the sheer joy of 25% annual returns from an unmanaged index fund. But will it make her retirement more secure? As her advisor, I think I owe her a little more information. I think my letter to her would be more direct than Mr. Church's, but maybe a little more helpful as Virginia tries to cope with her new reality.

Tell It Like It Is

The gentle approach has some appeal, but Virginia needs some practical help if she is ever going to retire in comfort. If we use sober assumptions about investment returns, it is just possible she may decide to work a little longer than she planned. Helping her make that decision may, in the long run, be a better service than patting her on the hand and telling her that the good old days are right around the corner. I would rather have my clients go out and earn their Christmas presents than sit by the chimney for the next 10 years staring at cookies and milk!

I would write something like this:

"I hate to tell you this, Virginia, but you are not going to see a bull market like this again in your lifetime. Get a grip, girl! It's not the end of the world. I know it's upsetting to realize that we can't always count on 25% annual stock price gains in a world of 3% GDP growth. But there it is! Worse yet, it's payback time, Virginia. You know that 23x P/E ratio on the S&P 500? Well it's going to come down; maybe to 14x, maybe less.