The Future Is Always The Same

“This time, it’s different.” Maybe so. Our country hasn’t had to deal with a global pandemic such as the Coronavirus since before the Great Depression. So in that regard, I’ll give you that it is different this time, yet in many ways, it is the same. Remember the depths of the Great Recession in early 2009? We were gripped with fear. The markets had plummeted roughly 57% from their October 2007 highs, and many (especially those employed in the financial services field) wondered if the banking system would collapse before our very eyes. It only took 18 months for the S&P 500 to slide 57%. (see chart)


Roughly 57% over 18 months. Though 18 months can seem like an eternity when the news is bad every day, this was a pretty precipitous fall. I remember the popular sentiment: “This time, it’s different.” Then came a historically slow recovery. It wasn’t until March 2013 that we returned to our October 2007 high. That’s five and a half years, a long time to essentially make nothing in our portfolios.


What happened after that? A long period of steady growth that lasted until February 2020!


I could analyze every bear market (a decline of 20% or more) dating back to the Great Depression with these same types of charts, but please continue reading because I promise I am not going to do that. Remember our first chart, the “fast” 18 month (approx. 540 calendar days) drop of roughly 57%? What would you say to losing over 26% in only 22 calendar days? Welcome to our most recent scare which is further amplified by our fears around the health of ourselves and our loved ones. Actually, let me say it correctly: The current global pandemic that creates concern around the health of ourselves and our loved ones is further amplified by the hectic volatility of the stock market. “This time, it’s different.”


It’s no secret that almost all financial decisions are emotional ones. Anxiety and fear are powerful forces. So too is logic, if we allow it to be. I tell clients all the time: “We can make a logical decision, or an emotional one. You pick.” It sounds all too simple, but the fact is, it can be that simple. I’m not trying to be dismissive of the realities of this virus; I am merely speaking in terms of investment decisions you are contemplating. You’re scared and nervous. That’s normal. I’m a little nervous. I feel like I’m living in this alternate reality right now. If you’ve been to a grocery store in the past week, you know what I mean. Am I letting those nerves drive my decisions? No, because I’ve been saying for 11 years that the next time the market took a meaningful dive, I was going to do the same thing I did in the Great Recession: buy, buy, buy. Did I pick the bottom then? Heck no, nor will I this time, but I bought the entire way down, and reaped the rewards for the past decade. Why? Because I fully anticipated a recovery. Today’s market may not be the bottom, and likely is not, but it represents a far better purchase option than we had around Valentine’s Day.

“But Jamie, I’m retired and don’t have as much time as you so I can’t be a buyer.” First, you don’t have to rub it in that you’re not going to work on Monday. Second, hopefully you have ample capital reserves to weather the storm. You do this by holding cash, CD’s, and short-term fixed income. A portion of your portfolio should be invested in stable securities such as these. How much? We prefer to see clients have at least 7-10 years of their expected withdrawal needs in these types of assets. Why? Well, if I were to review each of the bear market recoveries of the past 90 years (as I promised I would not), you’d find that the average recovery (peak-to-peak) is 3.5 years, with the most recent Great Recession (2007-2009) and Tech Bubble (2000-2002) taking about 6 years each. Those recoveries, like all others, are followed by continued growth as well. Using a corny analogy, I tell clients that capital reserves are like canned goods in the storm cellar and we like to see them have 7-10 years available in their portfolio. If you have enough capital reserves, then your focus can be things other than money.

Let me share one more chart. Here is a 90+ year history of the S&P 500. Do you see a trend?


During each of those major market drops, it was said “This time, it’s different.” For their own unique reasons, each one was different. However, “the future is always the same.”

Keep Calm and Invest On.


One thought on “The Future Is Always The Same

  1. Excellent assessment of the markets! I’ve never seen it done this succinctly. Good for you, I hope everybody reads this and absorbs it.


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