On Wednesday, the 10-year anniversary of the March 2009 low in the stock market and the unofficial turning point of the global financial crisis will be upon us. Ten years later the ramifications continue to be felt. The US Government has (supposedly) put in place additional economic safeguards so “too big to fail” institutions never again threaten the global financial system. It’s my opinion that you can’t legislate greed from any system, but that’s for a different post…
For those investors who were lucky enough to finally start making some real money during the economic expansion of the 1990s, the stock market only compounded those gains. But by the end of the decade, fundamental analysis gave way to “potential earnings”, “buzz”, and “eyeballs” (note this is not dissimilar from the notion of MAUs, or monthly active users paraded by Twitter, Snapchat, and Facebook). Novice investors felt the toxic blend of irrational exuberance and fear of missing out (FOMO). With no end in sight, the technology market finally crashed in 2000, which eventually took down the entire equity markets almost 50%. From 1998 to now, it is historically one of the worst 20 year periods in US history. To make things worse, just as investors were starting to believe the next wave of expansion was upon us, another economic decline came to decimate their portfolios (and in some cases, their lives) in 2008. Some of these investors never made it back to the stock market.
As I look back on my own experience during March of 2009, I have come to think of it as typical. I was part of a large generation that still couldn’t figure out what to be called (Gen Y was too easy, I guess). I had been in the financial business for a couple years but this time period certainly had an effect on me personally and as a future advisor. Those feelings of helplessness, fear, and anxiety became the future optimistic foundation for Second Level Capital, although I didn’t know it at the time. The stock market had made a low three days prior, but upon waking up March 9th, it should didn’t feel like that was going to be THE low. Pre-market futures were “limit down”. Sellers had overwhelmed the system to the point where it was no longer allowing selling until US trading hours began. Credit markets had been effectively frozen for months. 100+ year old institutions vanished into the history books. Caterpillar was having trouble making payroll and the banks were on their way to being nationalized. The average investor looking for help (even from a relative rookie) was down between 40%-60%, while the Oracle of Omaha’s holding company, Berkshire Hathaway, had fallen from 100 to 45 (so much for all those great investing quotes). I remember thinking that maybe it really WAS the end of the world as I had known it. After all, the Japanese stock market (a favorite example for doomsday soothsayers) had fallen 80% since 1989.
But without warning, the skies started to clear. By the end of the month, the S&P 500 would be up 25% from the bottom. By the end of 2009, the market had almost doubled from its low. When looking back, it’s not how high we’ve gone that surprises me (after all I think the Dow Jones will be over 100K in the next 25 years), but the lack of volatility. Sure, there were 15%+ declines in 2010, 2011, 2015, and 2018 (which all felt like the next BIG one was about to come), but only one of these years even finished down more than 1%. This has undoubtedly been one of the greatest 10-year periods for stock market investors. On a total return basis (including dividends), the S&P 500 is up over 400% since that fateful day in early March.
With the dichotomy between last two decades, what do we think the next 10 years will bring? To be honest, we have no clue. But we’ve seen some major extremes over these last two decades, so whatever it brings, we’ll be here to guide you through.
– Adam
- The Easiest Retirement Choice – The importance of staying fully invested in stocks with a long-term time horizon, assuming you don’t want to run out of money when you retire.
- Where Big Leaps Happen – A healthy life requires diet and exercise, but when combined they become greater than the sum of their parts. Same as investing.
“Any man who claims to know what the market is going to do any more than to say that he thinks this or that will occur as a result of certain specified conditions is unworthy of trust as a broker.” – Charles Dow
I read it. 🙂