Yesterday was a hard day in the market; some may even contend the market has "never been this bad." But that would be our emotions speaking, and it would be factually incorrect. The S&P 500 was down 9.5%, a far cry from the 22.6% it lost on Black Monday - October 19, 1987.
We only bring this up because we believe it provides perspective. It is easy to allow ourselves to believe that the current conditions are the WORST that have ever been. Time (and gains) heal old wounds in the market. The losses on Black Monday, the "Great Recession," the "Tech Bubble," and every other major market draw down begin to fade as the markets reach new highs and portfolios grow over time.
And just as the memory of Black Monday, the Tech Bubble, and the Great Recession have faded from memory, so too will March 12, 2020. If asked if this market will recover, I believe most investors would say, "yes, eventually the market will recover." However, they would also question how long it will take for the recovery to happen (many doubting it would happen in time to benefit themselves).
The truth of the matter is no one can definitively answer how long it will take for the market to recover. However, history can give us insight as to what "may" happen. After Black Monday, 1987 many investors must have felt that they would not live to see the stock market recover. Some may have even questioned if it would ever recover. Today we have the benefit of looking back at history. The market recovered fully from its Black Monday losses in just one year.
If investors had known this in October 1987, would they have sold out of the market or would they have felt compelled to add to their stock holdings? We can say today, "of course they would have wanted to increase their stock holdings so that their portfolios would return to their previous highs even faster." But we can only say this because we know how (and when) the market would recover.
When we look at the market today, we do not yet know the outcome. We do not know if it will take a week, a month, a year, or longer for this market to recover. And as investors have asked themselves countless times before, we ask, "How long will it be before we recoup our losses." The underlying fear in this question is whether or not we will recoup the losses in time to meet our financial goals.
Looking back at Black Monday in 1987 (well before the information age), the market only took one year to recover. We know that with instant 24/7 connectivity, data (and decisions - i.e. to buy / sell) flow more quickly. We also know that the stock market tends to move more quickly than it did before the information age. This tells us that we could reasonable expect to see a faster recovery now than we did in 1987.
Further, we can look at the Great Recession of 2008. From January 1, 2008 through March 9, 2009, the S&P 500 was down 52.5%. The market's losses were so significant, even balanced portfolios didn't seem to protect investors. During this same period, a balanced portfolio of 60% stock, 35% bond, and 5% cash was down 30%. Many investors felt compelled to reduce their risk and minimize their losses. This was accomplished by selling out of the market.
Unfortunately, this was a counterproductive move. By December 31, 2009, this hypothetical balanced portfolio had recouped much of its loss and was now only down 8.9% from its January 1, 2008 value. By December 31, 2010, this "balanced" portfolio had swung from a 52.5% loss to a gain. Sadly, the move some investors made to "protect" against future losses actually impeded them from recouping their losses.
We very much understand the motivation to "stop the bleeding." But we also understand the impact of timing the market. Most often, investors will not get back in before major market rallies, and their performance will suffer for it. This is why we discourage "timing" the market and promote "time in the market."
Please call or email us with any questions.
Sincerely,
Fortem Financial
www.fortemfin.com
(760) 206-8500
