Good morning & happy Monday!
“Life is not a problem to be solved, but a reality to be experienced.”
– Soren Kierkegaard, Danish theologian, 1813-1855
With today being the 22-year anniversary of the September 11th terrorist attacks, I wanted to revisit that horrible day for a moment.
In January I had an opportunity to go to New York and visit “ground zero” where the foundations of the twin towers once stood. It is a moving experience and an important reminder that our freedom is so fragile.
I know we all remember exactly where we were and what we were doing when the news broke on that horrible day. I was with my dad at Grand Canyon National Park watching a beautiful sunrise. As we got on a shuttle bus we heard a panicked voice over the radio say “the United States is under attack.” The feeling of helplessness, the uncertainty, the fear, the anger, the confusion … a million emotions going through my mind and heart at once … it was hard to make sense out of the world.
My oldest daughter, now 24 years old, was 2 when that happened. September 11th is a historical event for her, much like Pearl Harbor is a historical event for me. These moments that shape our lives become historical events and the next generation simply learns about them in an academic sense … but they never EXPERIENCED them. There is no substitute for EXPERIENCE.
As I mentioned last week, I was 21 years old and in training to be a licensed Financial Specialist at a bank during that time. I passed my last required investment license on January 17, 2002.
I remember petrified bank clients coming in and asking the advisor I was training under what they should do. I was scared myself, and despite all my training I did not know what to make of everything that happened. I realized at this point that the guidance I would provide in this career would have significant long-term consequences on people’s financial well-being. I had chosen a career that would make a real difference in people’s lives.
On September 10, 2001 the S&P 500 closed at 1,092.54.
On September 11, 2001 the S&P 500 closed at 1,038.77, roughly a 5% drop.
The S&P 500 went all the way down to 776.76 on October 9, 2002.
This was my first market correction EXPERIENCE in this industry. My advice to my clients was basically, “I’m a finance major and I’ve read all sorts of books on this … the books all say stay the course so that is what I think you should do.” That was good advice, but there was very little conviction from me on that advice because I was just as scared as the next guy. It my first time EXPERIENCING a major market correction.
The lesson I learned from my first market correction: even when faced with challenges never experienced before, businesses adjust and those of us who own these businesses through stock ownership are rewarded as long as we are patient, diligent, and disciplined.
Things stabilize and 2003-2007 were pretty solid investment years (S&P 500 was +26.38% in 2003, 8.99% in 2004, 3.00% in 2005, 13.62% in 2006, and 3.53% in 2007).
Then comes what is now referred to as “The Great Recession of 2008.” This is the worst financial time of all our lifetimes. The S&P 500 was down 38.49% in 2008.
This was a horrible time for our country, and the world. Unemployment went to 10%, foreclosures skyrocketed, the federal government took the unprecedented step of bailing out banks and the auto industry … this was a deep recession.
On October 9, 2007 the S&P 500 closed at 1,535.28. One year later (October 9, 2008) the S&P 500 closed at 996.23. By March 9, 2009 (the bottom of this market correction) the S&P 500 had fallen all the way down to 676.53. From 1,535.28 to 676.28 in roughly 17 months. That’s over a 55% drop during that period of time!
I had just started my career with Northwestern Mutual at this time (great timing to start a straight-commission job 😉) and this time I much more confidently advocated for my clients to stick with their plans. I can’t tell you how many times I said things like “stay the course,” “this too shall pass,” and “just ride it out, it won’t rain forever.” Again, good advice, and I was able to deliver it more confidently because I had EXPERIENCED the previous market correction to understand how such corrections work in real life.
By March 9, 2010, one year following the market bottom, the S&P 500 closed at 1,140.45 … 68% higher than it’s close 1 year earlier. It took until March 5, 2013 for the S&P to reclaim a new all-time high of 1,539.79.
It took only 17 months for the market to go from 1,535.28 to 676.53 (October 2008 – March 2009), and it took almost 4 years (March 2009 – March 2013) to regain the losses sustained to return.
The lesson I learned from EXPERINCING my second market correction: even when faced with challenges never experienced before, businesses adjust and those of us who own these businesses through stock ownership are rewarded as long as we are patient, diligent, and disciplined. (You’re going to see a trend here 😊.)
In fact, my conviction was so high that I personally took the proactive step of converting 100% of my traditional IRA over to a Roth IRA. This allowed me to pay taxes on the reduced value and then benefit from tax-free growth for all the growth going forward. An exceptionally wise move that I am still benefiting from today!
I’m getting longer winded than I intended here, so I’ll skip commentary from 2013-2019 and we’ll just jump right to the insane year that 2020 was.
February 19, 2020 the S&P 500 closes at an all-time high of 3,386.15. Then this thing called Covid-19 comes on the scene … you might have heard of it. 😉 By March 23, 2020 the S&P 500 had fallen to 2,237.40 … a roughly 34% drop in 23 trading days! The fastest, steepest drop we had ever experienced.
The entire world as we knew it was completely changed in the blink of an eye. No more hugs or handshakes, instead it was masks and isolation. We were scared of dying, scared of the virus, heck, we were scared of each other. An absolutely crazy time in human history!
This was now my third market correction I had personally EXPERIENCED as a financial professional … what did I tell my clients? “At very minimum, stay the course … but if you can get greedy this is the time to do it! Add money to your portfolio, increase your equity exposure, do a Roth conversion, take advantage of this tremendous opportunity … stocks are on sale!” Many of you remember me telling you this, and it most certainly was wise council. As with virtually every market correction, tremendous opportunities abound.
What I did personally is not what I recommend for clients as it is an exceptionally aggressive move, but I borrowed $25,000 from my home equity line of credit to invest in equities as I viewed this for what it was … the buying opportunity of a lifetime. This goes against traditional investment advice, and I am not encouraging, advocating, or recommending it, I’m just telling my story.
The S&P 500 not only recovered the losses sustained in that “flash crash” from February 19, 2020 – March 23,2020, but it was actually up over 20% for the entire year. On January 1, 2020 the S&P 500 opened at 3,244.67, by December 31, 2020 it closed at 3,732.04. That’s one rollercoaster of a year!
The lesson I learned from EXPERIENCING my third market correction: even when faced with challenges never experienced before, businesses adjust and those of us who own these businesses through stock ownership are rewarded as long as we are patient, diligent, and disciplined.
It did not take long for me to EXPERIENCE my fourth market correction … it started January 4, 2022 and we are still in it. The current all-time market high for the S&P 500 occurred on January 3, 2022 with the S&P 500 closing at 4,796.56.
Since January 2, 2022 Russia has attacked Ukraine, the U.S. had added over $2.5 trillion to our national debt, former President Trump has been indited 4 times, our current president Joe Biden is under increasing suspicion for corruption, the Federal Reserve has increased interest rates 11 times, and inflation has hit a 40-year high of 9.1%.
The S&P 500 is hovering around 8% below it’s all-time high from 20+ months ago, what should us as investors do?
I do hope my answer is obvious here. 😊 EXPERIENCE can lead me to no other conclusion that to say, “Stay the course, be diligent, be disciplined, stick to the plan … view these market pull backs for what they are: normal, natural, and healthy. If you can take advantage of these opportunities by all means I encourage you to do so (add money, convert to Roth IRAs, tax loss harvest, etc.), but at very minimum don’t freak out and don’t take your eyes off the goal.”
This fourth market correction we are still currently EXPERIENCING is teaching me the same things the earlier three did: even when faced with challenges never experienced before, businesses adjust and those of us who own these businesses through stock ownership are rewarded as long as we are patient, diligent, and disciplined.
I’ve said it before, I’ll say it again: don’t let short-term headlines dictate your long-term financial plan.
Sorry for the long email here … lots to talk about. I’ll try to make next week’s memo a little shorter. 😉
It is beyond an honor to assist in helping you navigate these waters, even when they are not easy. Please never hesitate to reach out if there is anything we can do to further support you.
Make it a great week ahead!