March 9, 2009, probably doesn’t stir up memories for many people, but it happens to be the exact date when the stock market finally bottomed (stopped declining) from the massive real estate and market collapse in 2008.  It was a period in history we’d all like to erase from our memories when home values and stocks were in free fall while the economy and job losses were in a tailspin.

However, since then, the economy and employment have recovered, and the S&P 500 has been up  916%, or 17% annually, as of March 8, 2024, as the chart below shows.

In early 2009, many investors and clients thought markets would never recover from those historic lows.  They might have pulled money out of the market, liquidated their investment portfolio, and sat in cash until “things get better.” At the time, the S&P 500 was trading at around 670.  Today, it is closing in on 5,200!

The uncertainty of what would happen to the economy was on everyone’s mind, so pessimism naturally circulated throughout markets in early 2009.  The last thing people considered was that this was a great buying opportunity, and they had better get back into the market!  It would have been fortuitous.

If we happen to experience another financial crisis, we can take heed from the following lessons we learned over the past 15 years:

Bull vs bear markets.  Stocks are generally in perpetual bull markets and have appreciated nearly 75% of the time over the past 90 years.  On average, bull markets last 5-6 years, while bear markets last less than two years.  (A bear market means stocks dropped by 20% or more.)  Some bear markets are worse than others, and none are identical.  However, investors tend to overreact to the present and forget about the past, leading to irrational investment decisions.

Market timing.  We have all heard the famous adage that it’s “time in the market, and not timing the market,” which makes a successful investor.  No investor Hall of Fame includes market timers.  It isn’t easy because you must be right twice, once when you sell and another when you buy back into the market (which is essentially impossible).  Whether done out of fear or otherwise, timing harms long-term returns.  The graph below shows that missing the best ”up” days in the market over the past 25 years can be costly.  Doing it too frequently could result in delayed retirement or increased savings, among other actions.

Animal spirits.  It doesn’t take long for investors to get back in the saddle. ’We’ve had numerous market shocks over the past 90 years, including the Great Depression, wars, assassinations, assassination attempts, Black Friday, 9/11, Fed policy blunders, real estate collapse, and a worldwide pandemic, and yet, markets have climbed higher.   The ingenuity of Americans never ceases to amaze me.  With all the adverse events, we have had extraordinarily positive ones that keep our country, economy, and companies moving in the right direction.

Key Takeaway

Market declines can be unnerving, especially when they graduate to severe bear markets, primarily because of the unknowns–will this be worse than the last crisis?  How much further can markets decline?  When will markets ever recover?  Can I retire? 

Investors generally think they don’t have time to wait for a recovery.  However, I believe investors vastly underestimate their patience.  Financial markets tend to recover more quickly than expected because lower stock prices create bargains, and if investors are willing to buy, markets tend to recover.

At Bloom Advisors, our team adheres to a disciplined review process whereby we regularly assess client portfolios, rebalance, and ensure clients stay fully invested. Hence, clients participate in every market upturn, which we know goes up more than 75% of the time.  We like those odds of success.