Looking Back On The Market

February 21, 2019

When I wrote this,

the market hit a new high earlier this year. According to the DQYDJ report, the S&P 500, then proceeded to drop precipitously for the year, ending down -6.24%, with dividend reinvestment, it was down roughly -4.3%. The Dow Industrial Average ended down -5.97%, with dividends -3.47%.

As you may recall from early February, the market had a 1,600 point drop, which was the single biggest day only to rally back. Then, we actually went on to hit record high as recently as late September.

However, The S&P500 and Dow then went on to have the worse December since 1931, and the biggest monthly drop since February 2009. Here are my words of wisdom back then:

The Longest Bull Market in History and Some Lessons Learned

Pat Moran, Certified Financial Educator with AFLI

It’s official, this past Wednesday this bull market became the longest in history at 3,453 days old, August 21, 2018. It marks the 3rd best in terms of total return with 321% or roughly an annualized 16.5% a year. The market from 1990 to 2000 returned 417 %, which was the best in total returns. The best-performing stocks include Abiomed up over 6,900% and need I say other numerous winners like Apple, Amazon, Google, Chipotle, Netflix, and 100’s more. Many investors have enjoyed huge successes and just a fantastic run!

This market’s run started back on March 9th of 2009 in the midst of the Great Recession and probably the scariest time for the stock market investing. There are some valuable lessons:
  1. “Buying when there’s blood in the streets,” Baron Rothschild
  2. “Be greedy when others are fearful,” Warren Buffett
  3. “When things are bad, they go up,” Billionaire David Tepper

During my workshops on Investing 101, I always say, ”If you bought a company at $10 and then it went down to $5 because of a stock market correction, does that mean it’s a worse company or is it just a better value because of the lower price?” Chances are that the company’s stock price was just caught up in a stock market pullback, so if I can now buy it a $5 what a great deal. However, this is another great lesson because most people sell when they should be buying and buy when they should be selling. It’s ironic that the stock market is the only place that I know when things are at a discount, everyone runs away! Yet, most of us are always looking for a discount, a better deal, or to save money.

I quoted billionaire hedge-fund manager David Tepper because he is one of the greatest hedge fund managers of all time, with a $12,000 investment in his fund grew to over $10 million in 20 years. Additionally, Tepper made a huge bulk of his profits in 2012 and ’13 when he took big positions in deeply depressed stock prices of airlines, banks, and insurers, a time when most people wouldn’t touch these stocks with a 10-foot pole. His lessons are many, but he followed one investment strategy of buying stocks when they were deeply depressed, or sectors when they are at a big discount! Ironically, it wasn’t always rosy as his portfolio actually lost money 4 years over that 20-year span, with 3 of those years being down more than 25%! However, having averaged roughly 40% a year over the last 20 years. His lesson, like many stock market gurus, is investing is a long term game with most of his gains coming from “simple patience.” “I buy things that have limited downside and unlimited upside, waiting for those assets to simply reprice back up to where they were!”

With this bull market breaking records, it leads us to the big looming question, “has this market run its course?” No one really knows. However, I’m reminded of other lessons that are important:

  1. “Bull markets don’t die of old age,” Kurt Spieler, chief investment officer
  2. “Know what you own and know why you own it.” Peter Lynch
  3. “Risk comes from not knowing what you are doing.” Warren Buffett
  4. “Act consistently as an Investor, not speculator.” Benjamin Graham  

With corporate profits doing well, companies getting a major boost from the recent tax reform legislation and interest rates being low, most economists see little signs that things are coming to end. Unless there is an escalation of this recent trade war causing big problems, a war, recession, or some catastrophic event, this market could keep breaking longevity records.

However, there is also another valuable lesson to consider that I discuss in my educational events, “I don’t know anyone that lost money taking some profits!” Bull market or not, taking some of your winnings off the table can ease the pain of another market correction.

What’s the message in all of this: markets go up and markets go down, and they can come down just as easily as they went up. However, good values at a discount are possibly worth buying and taking profits can be a really good thing!

Don't miss these stories:

Live Long and Profit
Providing value, using innovative solutions and products, protecting against the unexpected, and specializing in tax friendly solutions. At the same time, committing to educate people so they can feel empowered to make good decisions with their money... that's the Healthier Money way!
Start Now