Everyone who had money in the stock market in 2007 remembers the painful 18 months that began on October 9, 2007. Most of us would rather forget, but learning from history should help us avoid mistakes made in the past. Did most of us miss something back then?
As a general rule, not over-reacting to stock market swings is a fundamental key to long-term success. Yet hindsight tells us that “buy and hold” was excruciating during those 18 months, during which the S&P 500 Index lost about 55%. Should we all have done something different?
In order to answer that question, we should first look at Friday’s 9th birthday of the current Bull Market. On that day (March 9, 2018) the S&P 500 Index closed at 2,786.57, up from 676.53 in those 9 years. That’s an astounding 312% gain. Even better are the NASDAQ gains of 496%. Would you have wanted to miss out on those remarkable numbers?
During these past nine years there have been some very scary times in this Bull Market. The summer months of 2015, the first six weeks of 2016, and the first several days in February, 2018, were painful and frightening periods. Yet we held, and on Friday the market was already approaching its January, 2018 highs (the NASDAQ actually set a record high Friday). Should anyone have sold during these three rough periods?
Have you noticed that every paragraph so far has ended in a question? This purposeful style is meant to reflect the simple fact that there is no absolute answer. Looking back is easy, so the “right thing to do” is readily apparent. Obviously, we did the right thing by staying put. So why did it hurt so much to watch the two 1,000+ point down days on the DJIA?
While the standard answer to these questions is that long-term investing pays off, we do like to consider the economic conditions driving the markets. It should come as no surprise that the economy is excellent. Job creation, tame inflation, and more money in our pockets from tax cuts, all have contributed to the recent strong market performance. Should we be surprised?
Looking back 10-1/2 years ago, and asking the same question, would the answer be the same? Money market funds faced danger of “breaking the buck,” mortgages were failing in record numbers, large investment firms were going under and/or seeking bailouts, oil, gold and silver prices were skyrocketing, and job losses were a daily occurrence. Enough questions – those were economic bad times, and that is an understatement.
“Staying the course” is made much easier by understanding and acknowledging economic conditions at the time. Markets don’t operate in a vacuum, and politically-biased opinions are ubiquitous and should be ignored. The purpose of the Van Wie Financial Hour is to help listeners understand the conditions influencing the markets at any time. When the markets are acting sensibly, we say so, and vice versa. Knowledge is power, as the saying goes. We couldn’t agree more. Enjoy the ride, even if it gets bumpy. Bull rides are like that.
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