The Battle For Optimism
Look at this map below. It was on the front page of the Wall Street Journal on December 29, 2008.
Think about that.
At a time when most people are having holiday gatherings and making plans for the upcoming year, one of the biggest and most prestigious national publications put out this article.
Perhaps some of you may have read this and wondered if you’d be celebrating the holidays in the following year, or if it would even be allowed by your new Ex-US governors. Why wouldn’t you have those thoughts when the mainstream news is reporting things like this?
To be fair, at the time, the global economy was reeling from the bursting of the housing bubble and the related contagion which spread throughout our financial system, but it still seems ridiculous in hindsight. At the time, not so much.
This article was posted a little more than a year before the start of the decline in US Stocks (10/12/2007). So here’s a chart of what investors in American companies experienced prior to this article going mainstream:
Time Frame: 10/12/2007 through 12/29/2008
A decline of nearly 43% in about 15 months is enough to allow doubt to creep into the psyche of even the most emotionless long term investors, and it’s certainly enough to keep your eyes glued to the TV, newspaper, social media, etc.
At the same time these negative stories were seducing us for our attention, there were reasons to be optimistic.
Reasons like:
- Do I think America is going to cease to exist?
- Do I think companies and financial institutions can learn from these mistakes and emerge stronger?
- Do I think housing is less susceptible to a future crash because lenders are no longer giving out loans to people who shouldn’t qualify?
- Do I think new companies may seize this as an opportunity?
…and more.
Unfortunately, that kind of optimism doesn’t attract eyeballs the same way as pessimism does.
As an example of this, take notice next time you’re stuck in freeway traffic, inching along until you finally get up to the cause of the slowdown. Based on the amount of time you’ve been sitting in your car, you’re sure the accident must be a tipped-over dump truck full of slippery banana peels or spikey sea urchins or something like that. But instead, you approach the scene and see it’s nothing. Not literally, nothing, but something barely worth slowing down for, off to the side of the freeway, and not impeding anyone. You realize the slowdown you’ve been stuck in had nothing to do with the thing itself — instead it was the compounded effect of a bunch of looky-loos in front of you, slowing down to see the damage.
Our attention gets sucked into potentially damaging scenarios because our survival instinct has us wanting to avoid those situations at all costs, so we pay close attention when they come around.
Okay, back to 2008… Given the seductivity of these doomsday narratives, it’s not surprising that the end of America would be taken seriously. So, just for the heck of it, let’s pretend you bought the S&P 500 Total Return Index on the day this doomsday article appeared (12/29/2008). Here’s what would’ve happened:
From December 29, 2008 to March 3, 2009, the prophecy looks to be coming true as the S&P 500 index falls another 25%. In hindsight, this was the bottom.
By May 8, 2009 the index recovered to it’s December 29, 2008 levels…. So about 5 months later.
A year later on December 29, 2009, the index had gained 32.71%.
Three years later it was up 55.06%.
5 years? How about 136.2%.
10 years? 253.4%.
Today (October 10, 2022)? A whopping 448.1%.
(Does not include taxes, fees, etc. For informational purposes only. You can’t directly own an index, but you get the point we’re trying to make.)
See for yourself:
Looking back, it would take a special kind of crazy person to confidently buy stocks in the middle of 2008. Fortunately, I get to work with a lot of these crazy people who’ve invested through ups and downs and sideways markets.
Still, the normal thing is to get seduced by the dangerous thing. That curiosity to learn the ins and outs of dangerous situations is what keeps elongating the life expectancies of our species. Keeping your eyes on danger and fleeing threats is embedded in our DNA.
But I also work with a bunch of people who didn’t have much savings in 2008. For them, their wealth accumulation is largely going to be about what they do in this current crisis and the next one and the one after that. This is where we have to battle to remain optimistic.
Thus, here are some cases for feeling better about where we’re at:
1) Investors can finally get paid for holding safer assets. Money market rates are currently approaching 3% while CDs and short term treasuries are near 4%/yr. A year ago these figures were barely above 0% and these are most attractive yields we’ve seen since 2007.
2) As the Fed puts an end to cheap money, we also see the demise of non-viable investments (NFTs, most crypto, companies with no path to profitability, etc.). The investments which do survive will be stronger because of it.
3) When people buy stocks they are buying an ownership stake in the current or future expected earnings of that company. If you want to buy some future earnings of various companies, you can get them for a major discount today relative to where they were a year ago. The same goes for dividends (see below).
Those are just three things to help you feel a little more optimistic, but here’s the one I always fall back on:
When people are selling investments, who is buying them?
Really, think about it. When you see “Stock XYZ is down 2% today!” ask yourself Who is buying this?….
Last week I asked a client this question and she said “I don’t know, there must be a lot of stupid people who want to keep losing money!” and we laughed about it.
But people aren’t stupid…
…Some are just more patient than others.
…Some don’t have a need for cash like others.
…Some have made so much money investing by being patient and optimistic over the last decade that they know they’re playing with house money.
I think the best way to feel optimistic is to more clearly define who you are and why you’re investing. If you have time, patience, and flexible needs, the world is yours.
That’s all for today.
Onward,
Adam Harding | Principal & Advisor & Amateur Blogger
www.hardingwealth.com
*Not investment advice. Past performance is not indicative of future performance. Not an offer or solicitation.
