As I sit at my desk this Christmas Eve, penning the final version of this narrative, we stand just one week from the end of a decade that witnessed a remarkable advance of the stock market. What I find most noteworthy is how easy it was to be cowardly, or perhaps a kinder word would be cautious, about investing in stocks given the plethora of negative news. Nevertheless, contrary to the doom and gloom scenario from the nattering nabobs of negativism, the stock market, measured by the Dow Jones Industrial Average (excluding dividends), has advanced 22.24, as of this writing.
We are once again sitting within just 93 points of yet another all-time high. How sweet it is! Pop the bubbly! Put on the rally caps and let’s celebrate! Whoa, not so fast eager beaver! Do you remember our motto about the three best times to keep our mouth shut are when we are swimming, when we are angry, and when we are right. So, let us remain humble, especially when excitement is in the air, as euphoria can evaporate in a New York second. Therefore, at the risk of raining on our gala, I encourage you and me not to toss Dow’s recent success into the faces of our dear friends, the pouting pundits of pessimism.
As a humbling reminder, and to psychologically prepare us for the potential of another significant decline, allow me to guide us on a brief stroll down memory lane. Do you remember what it was like on October 9, 2007? That is when the Dow reached its record high. The economic climate was flourishing, people had jobs, home prices were soaring, and most folks felt good about our economic future. Nonetheless, just a few months later, calamity hit and we entered into one of the deepest recessions and stock market declines that our country had witnessed since The Great Depression. The crash took us back to levels not seen in 12 years. How is that for a humbling experience? It was not until March 5, 2013 that we got back to the previous high, which was 1,974 days.
Is there anything that we can learn from the Great Recession fiasco and the subsequent rise of the Dow to record levels? You bet there is. It is the same lessons that we should have learned from the 1987 crash, the 1990-1991 recession, the 2001 World Trade Center attack and subsequent meltdown in the market and the 40 percent decline in 2008. The lesson is the same, stock and bond market declines are normal and expected, so why fret about the potential gut wrenching drops assuming that you have allocated your money properly between stocks, bonds, and cash. Thanks to our friends from the American Funds who remind us of the inevitable:
Arguably, the best lesson that we should have learned from the past corrections is that if one would have stayed the course, albeit with a side dish of panic, one should have weathered the storm nicely, as the market resumed its upward trend. To be strong enough to stay the course we need to know deep in our gut that market declines and panic selling will happen, and they will likely scare the snot out of us. They will hurt. They will be frustrating, but if we do not panic, history tells us they will not matter.
Every year-end for the past 35 years, I dust off my trusted vintage crystal ball and ask my faithful friend to predict the direction of the stock market for the upcoming year. Not to my surprise, the message is pretty much the same, “Harry, every day, heavily credentialed experts are predicting a market crash. At the same time, equally credentialed experts are predicting a boom. Who is right? I have no idea and the good news is that no one else does either, as we are all just guessing…an educated guess perhaps, but still just a guess! Always remember that far more money is lost preparing for corrections, or trying to anticipate corrections. In other words, market timing is an un-winnable game over time. Harry, I suggest that you heed the words of wisdom from baseball’s hall of famer, Casey Stengel, who said, “Never make predictions, especially about the future.”
Harry Pappas Jr. CFP®
Managing Director-Investments
Master of Science Degree Personal Financial Planning
Certified Estate & Trust Specialist ™
Certified Divorce Financial Analyst™
Pappas Wealth Management Group of Wells Fargo Advisors
818 North Highway A1A, Ste. 200
Ponte Vedra, Florida 32082
904-273-7955
harry.pappas@wellsfargoadvisors.com
The use of the CDFA™ designation does not permit Wells Fargo Advisors or its Financial Advisors to provide legal advice, nor is it meant to imply that the firm or its associates are acting as experts in this field.
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