Good morning & happy Monday!
“History doesn’t repeat itself, but it does rhyme.”
Mark Twain
As a father of 4 children, all my kids have heard me say “this is a teachable moment” many times in their lives. As a parent I want my children to take a pause after a mistake happens and rewind the tape to see what choices were made that lead to the consequences they are facing.
Life is full of teachable moments and some of the recent economic developments provide us with tremendous teachable moment about the market, economy, etc. The main takeaway I hope you get from this memo: this time is never different.
It seems that there are 2 main narratives in the financial news media right now: inflation and supply chain shortages. Neither of these were stories a few months ago, 6 months ago or a year ago.
What was the primary story a few months ago? The US withdraw from Afghanistan
6 months ago, the surge of the delta variant of COVID-19 was all the media could talk about.
One year ago, it seemed that almost every story pertained to the upcoming presidential election and social unrest.
I have news for you … 6 months from now, a year from now there will be some new story that captivates the headlines.
Here’s the thing … each time there is a new headline we as investors have to yet again fight off the fatal investing instinct of thinking … THIS TIME IS DIFFERENT.
“Every other time the market dropped it has come back, but THIS TIME IS DIFFERENT, the market will never come back from THIS.” I heard some variation of this throughout my entire career … following the 9/11 terrorist attacks, during the housing crisis and great recession of 2008, upon the election of Barak Obama, Donald Trump and Joe Biden, and at the outbreak of coronavirus, just to name a few.
There is ALWAYS going to be something that causes us to be uneasy about investing. ALWAYS!
Let’s use oil as an example since that is a product we all use every day.
On April 20, 2020 the oil futures market dropped $55.90 to settle at negative $37.63. For a very short period of time oil companies had to pay people to take oil off their hands. That had not ever happened before, oil had never been worthless. “Oh my gosh, THIS TIME IS DIFFERENT.”
That was 560 days ago. Today oil is trading above $83 a barrel (the highest level since 2014) and we are paying over $3 for a gallon of gas.
The oil market corrected itself. Supply & demand worked itself out AGAIN … as it ALWAYS does.
Back in July 2008 oil traded at over $147 a barrel, it’s highest level ever. Oil companies increased supply which brough the price down. Yet again … supply and demand wins!
By its very nature the economy and many of the elements within the economy are cyclical. Thing go up, and things go down. THIS TIME IS NEVER DIFFERENT.
Throughout our history we have had good presidents and bad presidents, good economic policies and bad economic policies, times of war and times of peace, times of economic expansion and times of retraction. The stock market just keeps plugging away … because as investors we are owning companies that are responding to whatever circumstances my arise with the effort to maximize profits for their owners (the shareholders … us). More on that next week 😊
During the next headline grabbing event please allow these lessons over the last 2 years to be in front of our mind and realize THIS TIME IS NOT DIFFERENT, but rather a different version of basically the same story.
Stay the course my friends!
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