Good morning & happy Monday! Hope you had a wonderful Father’s Day!
The ultimate measure of a man is not where he stands in the moments of comfort and convenience, but where he stands at times of challenge and controversy.
Martin Luther King, Jr.
My friends, this market is challenging, this is where things get REAL.
This is no longer a hypothetical question of “how would you respond if your portfolio were down ___%?”. It is happening. We are presently watching as our portfolio values take a hit. It’s most certainly not fun. I don’t expect there is a single person reading this who is like “yeah, I’m having a blast watching my investments lose money.”
And yet, here we are. So, what do we do about it?
In early June we took a family vacation to New England and had a chance to spend a few days in Boston, a city rich in U.S. history. I saw a t-shirt in a souvenir store that said ‘“I’m tired of constantly repeating myself’ – History” 😊
I would like to take this opportunity to revisit history, because I think there is a lot to learn from it.
The worst financial market of our lifetimes was 2008-2009, let’s revisit that timeframe for some perspective. This was a truly scary time in the financial markets … subprime loans caused the entire banking industry to almost collapse (remember the government bailouts of the banking & car industry). The stock market’s response to all of this was dramatic:
December 31, 2007 the S&P 500 closed @ 1,468.36
By December 31, 2008 the S&P 500 closed @ 903.25 (a roughly 38% decrease from a year earlier)
The S&P 500 bottomed on March 9, 2009 @ 676.53 (a total of a roughly 54% decrease from 12/31/2007)
Let’s pause here for a moment. Let’s say that an investor says on 12/31/2008 after a 38% loss “I can’t take it any longer … cash me out!” For 67 days (January 1, 2009 – March 9, 2009) that was the right call. But … what about after that?
By June 30, 2009 the S&P 500 was at 942.43 (nearly 5% higher than the December 31, 2008 close and nearly 40% higher than the March 9, 2009 close).
By the end of 2009 (12/31/2009) the S&P 500 closed at 1,115.10, over 60% higher than the March 9, 2009 close and over 20% higher than the 12/31/2008 close when our hypothetical investor bailed.
What followed from there was an incredible bull market … with 11 out of the next 12 years (2010-2021) being positive (and the negative year of 2018 only being down 4.38%).
December 31, 2021 the S&P 500 closed at 4,766.18, that’s …
- 324% higher than December 31, 2007
- 527% higher than December 31, 2008
- and a whopping 704% higher than March 9, 2009.
- All these figures also ignore dividends, which when factored in would make the figures even more favorable
What that hypothetical investor who bailed on December 31, 2009 did was make a trade … and a very bad trade. He/she traded his/her financial needs for his/her emotional wants. Short-term (67 days in this example) the investor felt relief (“I stopped the bleeding”) but the price for that was HUGE as the above bullet points outline.
As a Tampa Bay Lightning fan I have been watching the Stanley Cup Finals where it’s the Tampa Bay Lightning vs. Colorado Avalanche. One team will win the series and the other team will lose the series. Both teams can’t win, that’s not how the sport is played. That is not how life works.
Right now there is a battle in each one of us … our emotional wants vs. our financial needs. Both cannot win. My professional calling is to always focus on your financial needs even when (especially when) they are in conflict with your emotional wants. I refuse to trade short-term market relief at the sacrifice of your long-term financial well-being.
This is when it’s the hardest. This is when it matters the most. Don’t quit. Don’t give up. Don’t lose hope.