It is true. The stock market will tank. It isn’t a matter of IF but WHEN and HOW MANY times in your lifetime.
The sooner you can accept this and not be surprised by it, you will have joined an elite investor club. Sadly, there are very few members. Even one of history’s most prominent figures couldn’t keep his emotions in check when it came to investing. Now let me be clear about something: I am not calling for or predicting WHEN the market will tank. I just know that it will at some point.
Since the beginning of when they started measuring the aggregate prices of company stock, the market has regularly and periodically reminded investors that when things go up, they always come back down. Fortunately — so far at least — the downs have been temporary.
The Market Will Tank – A Bear Market
In fact, since the conclusion of WWII, the stock market (as measured by the S&P 500 index) has declined by at least 20%, what is typically defined as a Bear Market, a total of 14 times! (Note: there were three periods that were “only” down 19%. Forgive me, but I am still going to include them in the Bear Market list.)
Prices of the S&P 500 Index After The Bear
In each one of these 14 a$$-kickings, the set of circumstances or reasons behind the drops were all unique. For each one of those 14 drops, there were countless investors who were convinced they were saving themselves by bailing out of their investment portfolio. They did this only to witness the market recovery while they likely sat helpless on the sidelines. As you can see in the chart, 100% of the time after the 14 drops the market recovered and went on to greater levels. It didn’t occur 50% of the time, nor 99% of the time … but 100% of the time!
More recent in the minds for many of us is the financial collapse of 2008-2009, or the Great Recession. Those investors who chose to bail on their investments during that time are likely wincing in pain whenever they look at their investment statements. The reason: the market is nearly 3 times what it was at the trough eight short years ago in March 2009.
And Yet a Bear Is a Bear
I am writing this piece in the hope that a significant number of blooom’s clients, my friends and relatives will read this. I want them to be better prepared with the knowledge and expectation that the market WILL tank again.
They will know that market declines are a fact of life. Not as predictable as the rising and setting of the sun — but a recurring event nonetheless. My fear is that in the midst of the next market decline too many investors will utter those four wealth-killing words that so many unsuspecting investors have uttered since the dawn of time: THIS TIME IS DIFFERENT.
By saying or believing those words in a time of market crisis, it allows the investor to justify irrational actions. It allows them to bail out of their portfolio.
Please mentally prepare yourself for a future decline. Know that the next market drop will feel unique and different. Just don’t let that “feeling” cause you to do something foolish like panicking out of your investments.
We don’t control the investment markets. Your investments will go up and down in value based on what happens in the markets. We do not make any guarantees your investments will grow. Past performance is no guarantee of future results. This information does not represent a recommendation to buy or sell securities.
Published on May 31, 2017