Happy Anniversary

Yesterday marked the anniversary of the market’s lowest point during the financial crisis, the birth of our current bull market.  A quick recap:

From its previous peak on 10/10/2007, the S&P 500 dropped 55% through 3/9/2009.

From 3/9/2009, the S&P 500 gained 237% (almost 19% annualized), including dividends through 3/9/2016.

Today, there are plenty of people on TV who “called” the peak before the financial crisis.  They never tire of patting themselves on the back, saying it was clear to them that there was a bubble and obvious that we were on a road to ruin.

This is bullshit, of course.

The wizards on TV who “warned you all” are largely perma-bears who predict a new stock market crash every year, a case of a stopped clock being right twice every day.  Some of them pull out data like the CAPE ratio, saying it showed an extremely over-valued market.  According to CAPE, the market has looked over-valued since 1989 – a bad stretch of time to be out of the market.  There were some people who actually did call the top in 2007 such as John Paulson, but it looks like this may have been more of a case of luck rather than skill as he caught the gold bug and performance has taken a big hit.  The more airtime that is devoted to the myth of market timing, the worse it is for people investing real money.  The only thing that’s “obvious” or “clear” about market timing is that it’s a great way to lose money and compound anxiety.

I’ll get back in when the market gets back to even.  This was a strategy put forth by many Nervous Nelly investors.  How did that work out?  An investor who bought at the peak and held on through yesterday would have gained 52% or about 5% annualized.  An investor who sold at the peak and bought back in on 4/2/2012 (when the S&P 500 finally made up all its lost ground) would have gained 53% or 11.5% annualized.  So the Nervous Nelly strategy pays off!  Or it would if you could time market peaks perfectly, which you can’t.  Those who sold at the bottom and got back in when the market was back to even still haven’t recouped their losses.  Not by a long shot.  With timing this bad, an investor would still be underwater by more than 30%.

The funny thing about the Bull Market Anniversary is that no one is taking credit for calling the bottom.  No one wants to admit that the stock market has been on a tear for the last 7 years.  Bull markets aren’t supposed to last this long.  All along the way we’ve heard that the other shoe is about to drop.  Financial apocalypse is just around the corner.  Annuity and gold salesmen are doing brisk business off of this short-sighted fear.  Many people feel like they haven’t participated in the bull market (all too often, they don’t know whether they have or not).

There is NEVER a good time to invest just like there’s never a good time to have kids.  There’s always a reason not to pull the trigger.  Investing is a long-term process.  What would have happened if you invested at the peak before Black Monday in 1987 when the Dow dropped 22% in one day?  A scary decision to stay invested in 1987 looks smart 30 years later.  With the benefit of hindsight, the ’80s were the Good Old Days and investing was easy.

Happy anniversary to the most hated bull market in history.  It’s a terrible time to invest.  Just like the Good Old Days.

Photo by Chris Yarzab