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The Best Lesson of 2008
Move on, but don't forget
Fund managers welcomed the last day of 2018 with relief - but probably not for the reason you expect. The start of 2019 marked a full ten years since the last day of 2008. This meant that dismal year, in which the stock market fell by 37%, would finally drop off their 10-year return numbers, thereby removing a drag on the reported results of many a fund manager. Moreover, because investment returns longer than 10 years are largely ignored, 2008 could now basically disappear from fund marketing materials. And, at least for the next 12 months, managers will be able to point to nine straight calendar year of market gains, with only 2018 showing a small loss (-4.6%)
Although it's tempting to wipe 2008 from memory, we should continue to look back at it from our now more distant perch. One obvious takeaway is that the emotional challenges buffeting investors during the "Great Recession" led to some bad decisions. Many investors didn't bail out of their plummeting equity funds until AFTER most of the damage had been done. As the chart below shows, the biggest outflows from equity mutual funds occurred late in 2008, barely months before the turnaround commenced.
Less recognized is how people also misplayed the other side of the crash. As the chart above shows, equity fund generally continued to see net outflows for several years after the market began its turn around on March 9 of 2009, in some cases at rates greater than twenty billion per month. Meanwhile, as investors sat on the sidelines or continued to sell, the U.S. stock market launched into the longest uninterrupted bull market in history.
Investors should not beat themselves up too much over being waylaid by a historically rare meltdown. But they should strive not to repeat the same, or similar, mistakes. In retrospect, the pessimism that prevailed in those days clearly drove the net outflows from the stock market that persisted for years. Seemingly confirming such fears, 2009 began gloomily enough, with the S&P 500 losing 9% in January and then another 11% in February (ultimately hitting a low of -50% from 2007 peaks). But on March 9th stocks began their turn, and by mid-May the S&P was up 30% from its low point, rising in 9 of the year's final 10 months. The S&P finished 2009 with an impressive +26% for the full year, despite having lost 20% loss in its first two months. Though almost nobody predicted it at the time, plain old US stocks would do better than just about every other investment type over the next 10 years.
Indicies: S&P 500 FTSE NAREIT Russell 2000 Barc US Corp H Yld MSCI EM MSCI EAFE GLD Barc Agg UST 3M T-Bill
So, now we know the best responses to the Great Recession were either to do nothing or, for those with truly steely countenances, to lean into it and increase market exposure. Those who stayed put regained all their losses in about over five years. Those few brave enough to run towards the fire made out even better.
Ned’s Notes Takeaway: The US stock market has been about the best game in town for the last ten years, just as it has been for generations. Wise investors understand that no one successfully times the market over long periods. Make a plan that makes sense for you and your ability to withstand market volatility (aka downward moves) and stick to it regardless of the noise the never-ending cycle of fear and greed sends your way.
Email with questions or comments: Nedmoore@bey-douglas.com
Articles of Interest
Should We Retire 'Retirement'?
- Some people advocate doing away with the concept of retirement
- With the extension of lifespans, we’ve effectively created a second “middle age"
- One study shows that 95% of retirees prefer enjoyable experiences rather than buying more things
Health and Wealth
Are short bursts of intensive exercise better than lengthy gym sessions?
- High-intensity interval training (HIIT) lost substantially more weight than traditional gym routines
- Best results of all were achieved by extreme bursts of exercise - known as sprint training
- Researchers said few people find time for longer workouts, while shorter ones are easier to achieve
Click here for more info
Email with questions or comments: Nedmoore@bey-douglas.com
Addendum: Ned's Notes is a proprietary newsletter created by none other than Ned. Feel free to forward it to others as you like but its contents may not be used for commercial purposes without the express consent of the author.
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