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Some Historical Perspective

Some Historical Perspective 

- By The Notorious CFP®


How scary is the stock market? In reality, not so much...

While digesting these numbers, keep in mind that these stats run through 2017, which was before our society became completely emasculated, abandoned logic and reason for an emotions-first, ask-questions-latter approach that helped pushed an entire global population toward the edge of the mental cliff (and many over) in 2020. Remember when we were told Justice Brett Kavanaugh was a rapist that engaged in gang-bangs? I do. Remember when we were told that Donald Trump liked to urinate on prostitutes? I do. Remember when we were told that COVID was a 'pandemic of the unvaccinated?' I do. All emotion-based fear-mongering. And all complete and purposeful fabrication, as we all recognize now.

Unfortunately, I don't have any liberal attack examples off-hand because the right

This is the White House Chief of Staff. Less than a year ago.  And these people want to be the final arbitrators of information.
isn't smart enough to speak emotionally and frankly, just isn't that creative. Their lies are less emotional, therefore less effective and way more lame... Unless you find Mitch "Cocaine" McConnell (nicknamed that specifically because he is so boring) and Rand Paul particularly galvanizing. Trump was the first Republican in thirty years with a heartbeat above 100 and even then, a.) few people genuinely believe he suddenly became conservative in 2016 after a lifetime of being a liberal and b.) it's hard to get in your punches when you're getting pummeled against the ropes for four years (he's been far more emotionally charged since he left office.)

As a result, the frequencies and time periods of volatility above are likely to be shorter - and drops deeper- in our new bipolar society, where politicians and their lackeys in the media are far more sophisticated and their bases far stupider. That's how Mass Formation Psychosis and collective mental illness work. Society bifurcates between the rich and the poor... the haves and the have-nots... those living in reality and those that don't... those that lead with their emotions and those that don't. And if you understand that, you're on your way to better understanding modern finance. It's really less Wolf of Wall Street and more Silence of the Lambs.

What if you could learn to expect market sell-offs? Consider for a moment a scenario where your investments fall 20% and stay there for another seven months from today- say, into next summer. After that imagine that they do what they've always done in the past several decades, and basically just rise (roughly) every six years out of seven. In that mindset, you might begin to: a.) accept that market drops are inherent in all cycles, and b.) work to condition your brain for resilience in future markets, so that if/ when it happens, you'll be prepared.

When investors are mentally prepared, they can be begin to "see the code in the matrix" as well as new and potentially profitable opportunities that historically present themselves in every "crisis." For instance, if the residential housing market in your area dropped in value by 40% this year, would your first reaction be emotional and irrational? Would you  immediately run outside to plant a For Sale sign in your front yard before all of your neighbors, in order to accept the first offer received so that you could get the heck out of Dodge? 

Or would you instead ignore these valuations because...

  • They don't really represent economic reality
  • You don't know or care what other people (especially modern Americans) think of the value of your house
  • You weren't even planning to sell anytime soon, and certainly not in a down market that favors buyers? 

... Would you call your advisor and ask him, "Why is this happening?" "How far could my house go down?" or "When is the market going to come back to break even?" 

... Would you turn on CNN or MSNBC to find out what their talking heads think?

... Would you sell your house and use the equity to buy a new one in Facebook's Metaverse? (My cheeky equivalent to most cryptocurrency.)

... Or would you start looking for houses to buy?

I know what I would do. It would probably involve some version of chortling, "Muahahahahahaha..."  then running down to my local mortgage lender begging for a loan before heading out to begin shopping for foreclosures. If one were so inclined, plenty of folks might even leverage up to their eyeballs to buy as many properties as they could get away with. (No, this is not a pitch for buying stocks on margin!) The point is that when you buy quality and hold it for the long term, regular drops in the market can start to resembling discount opportunities to buy more for less. Drops are not only expected, but anticipated.

Why would I be so optimistic in this hypothetical scenario? Because we've all been there before. For various reasons, we have more faith in the housing market and we already (think we) know how that movie ends. The scared, broke and over-leveraged participants in any market often get fleeced. The patient, opportunistic and flush folks get rich(er). As you can see from the chart above, the stock market goes down with far more frequency than the housing market... So what's the difference? Why aren't we more conditioned to expect it to continue doing so? Why don't we acknowledge and celebrate a stock market that provides us with more opportunities to build wealth? Why is every recession, "The Big One?"  And do you really think Apple, Google, Microsoft and Amazon are going away anytime soon?

This is the market that has scared an entire generation of investors to flee to cash in 2022?.. 

How do these past market losses in the grey bars above compare to your total loss in 2022? And does the depth of these past losses surprise you? That's okay. They initially surprised me, and I'm supposed to know this stuff!

When markets go down, it's death-by-a-thousand-cuts each day to us both. Like "a great disturbance in the Force, as if millions of [investor] voices suddenly cried out in terror and were suddenly silenced." (Obi-Wan Kenobi reference? Check!) So you think I would remember these drops. But I honestly don't because the further these grey lines appear in my memory's rearview mirror, the less I can recollect the emotional toll they surely must have inflicted on me and my clients.

Maybe I've blocked them out because of all the emotional trauma. When you look at charts like those above, what we're experiencing in 2022 starts to look downright normal for a healthy capitalistic system (albeit, run by crazy people for crazy people) and not something to worry so much about...

Explain to me again how the stock market is too risky. And cash in the bank is safe.

So please remind me why do we worry so much about market corrections again?

Stock market studies (like below) show fairly conclusively that we humans are truly our own worst enemies and collectively terrible at investing. And another reason reason why warnings of the certain demise of the financial planning profession kinda' make me chuckle... In a country with 2/3 of the country living paycheck-to-paycheck, 1/2 unable to cover a $1K emergency and 40% of retirees living exclusively on social security benefits... How is that possible?!?!

Why do individual investors in the stock market earn so much less than the actual market they invested in? Like you, I initially blamed the patriarchy, climate change and systemic racism. Turns out we're really just poor market timers.