The Investment Apocalypse Du Jour

As of this writing it seems we are on the verge of the 29^th bear market in U.S. stocks since 1929. Not only that, we are seeing the first bear market in bonds in a half century. The bond market returns, by some measures, are the worst since 1842 (yes, that’s an 8). “This is not normal!” my brother tells me. He wants to go to cash until things “feel better.” Hold that thought.

Bear markets are defined in different ways, but one common definition of a bear market is a 20% decline from peak to trough. Since I’ve been an advisor, I’ve seen:

• Black Monday. On October 19, 1987, the Dow went down 22.6% in one day. That’s certainly not normal. It finished the day at 1,739. Today the Dow is around 32,000.
• The Dotcom Bubble. Everyone was making a killing in dotcom stocks—until they didn’t. From March of 2000 to October 2002, the NASDAQ index lost a whopping 77%. Yikes! The index hit 1,114. That certainly is not normal. Today it is 11,535.
• The Subprime Housing Lending mess. High-risk mortgages, bundled up to “lessen the risk” did not do so. As a farmer friend told me, just because you have one sick cow, putting them together with a bunch of other sick cows, does not make it a better deal. When home prices fell, borrowers defaulted, and the entire financial system was hammered. That is not normal. On March 6, the Dow fell to 11,650.

Is this time normal? It doesn’t feel like it, does it? Yet, I’m reminded of what Sir John Templeton, one of the greatest investors of all time, said, “The four most expensive words in the English language are ‘This time it’s different.’”

It always feels different when you’re in the middle of a bear market. Fear that it may continue, and that the stock market will go to zero, would mean a total breakdown of the U.S and World economy. It is not impossible, I guess. Just as if it is not impossible that the sun will not rise tomorrow. If either of those happen, we have a lot more to worry about than our stock certificates.

So, I ask those wanting to go to cash in, when will you feel better? The common response is something like, “Well, you know, when things feel normal.”

“What has to happen for things to ‘feel normal’?”

“When the market is back up and doing well.”

They want to be in cash when the market is going up until they “feel better.” Logically, of course, that doesn’t make sense. But it isn’t about logic.

The best course of action is the one with the highest probability of success (sorry, there are no absolutes). That course, in my opinion, is to hold a well-allocated and diversified portfolio focused on accomplishing your long-term financial goals.