As I was going to the gym on Saturday morning I was listening to the Ric Edelman investment show on the radio. For those of you who don’t know Ric Edelman is an award-winning financial planner and New York Times Bestselling author on all things finance. While I don’t agree with everything he says I like listening to him give advice to various callers. He was relaying a story where one of his clients had called him and was apocalyptic because of the recent downturn in the market. Over the past three weeks the stock market is down over 9% and down almost 12-13% from its all-time highs in May.
The client was asking Mr. Edelman about what he should do about his investments. Apparently the world was coming to an end because this person had, like many of us, lost about 10% of his holdings. The message that Ric gave to his client is something that everyone who is invested in the market should adhere too. That message GET A LITTLE PERSPECTIVE.
This client was anxious over a 10% drop in the stock market and in essence wanted his money out. Now nobody likes to lose money, but this person wasn’t complaining about the previous 5 years when the stock market had GAINED over 45% and if this person was fully invested in 2009 then their stock holdings would have TRIPLED! Rather he was allowing THREE weeks to dictate his entire financial life and ignoring the past seven years.
I have had similar conversations with friends of mine and read other personal finance blogs and posts who believe the stock market is nothing casino, this is the beginning of the end of the bull market. The stock market is going to fall and it is going to be the Great Depression again. In other words, the sky is falling, the sky is falling.
If people want to have a Chicken Little attitude about investing that is fine with them, but give a little bit of perspective. Just because the past three weeks and really the past few months have been crappy doesn’t discount the years, nay decades, we have had in investments.
As I mentioned in my post on Friday in its 135 year history investments have ALWAYS come back.
You can argue that this time is different and that past is not prologue, but I heard the same stuff in 2008. If I would have stuffed my money in a mattress I would not have nearly the portfolio I have now.
I hate to lose money. I have lost about $30,000 over the past few months. Am I worried? Not really. And I believe that we are in a bear market, which means that I believe the stock market is going to go even lower, which means I will lose more money. I believe we have been in one for the past seven months. I hope I am wrong, but all the signs say the economy is slowing. I believe investments will go lower and that we will probably actually have a recession in the next 18 months.
When I say that people panic like it is the end of the world. Considering that bull markets happen, on average, every 36-42 months and that we are in month 84 of this bull market I think we are due. Moreover, recessions occur every 5-6 years, but we are going on 7 years and no recession. We are due for both a bear market and a recession.
I hate to say that because it has real consequences for people. They might lose their jobs and/or money in the market, but I think it is important to have PERSPECTIVE. A recession or bear market will not destroy the world or the United States. We will come out stronger on the other side.
A Side Note On Politics
This notion of perspective also applies to politics. I love politics. My research focuses on American political culture, particularly the American presidency. I tend to take a long view of the pendulum that is the U.S. political system. So when I talk about perspective in politics my biggest pet peeve is when people talk about how this is the worst time in American political history. Barack Obama is the worst president ever or George W. Bush was the worst president ever. Congress can’t get along and they never get anything done. My attitude toward those who make such claims is two-fold. First, they are extremely ignorant of American history. Second, understanding that history will give you a little perspective on today’s politics.
For example, Barack Obama is not the worst president ever. That title would go to James Buchanan or Warren Harding. If you ask most Americans who those gentlemen were they probably couldn’t tell you when they were president and why they might be the worst president ever.
Also, if you think is the most contentious election in history then you need to read up on the elections of antebellum America. The election of 1828 between John Quincy Adams and Andrew Jackson is considered to be the dirtiest in presidential history.
When it comes to politics Congressional inertia, like it or not, is actually built into the Constitution. The checks and balances of that document makes sure that no one branch will have supremacy over another. It also requires that you will need more than a simple majority to exert one’s authority. This can lead to a lot gridlock in the system. But as a professor once told me that is the way the Founders developed it. They wanted gridlock. They wanted to put the brakes on the whims of the populace. So if you don’t like that system then blame the Founding Fathers and the development of the Constitution, as well as its development. Elvin Lim has written a fabulous book on the subject.
Sorry about the rant into politics, but I absolutely hate it when people say that this time is the worst ever or this candidate is this or that. Get a little perspective.
The Bottom Line
The same thing with investing. Let’s get a little perspective on the current downturn in the market. Most of us, if you are investing in the stock market, are doing so for the long-haul, which means that we are going to be doing this for years, if not decades. I would bet all of my investments that in 20 years I will have more money in 20 years than today. In fact, I would bet that I will have much more. Hundreds of thousands more. Could I be wrong? Sure I could. And if I am wrong then tens of millions of people will be as bad off as I am. And that probably means that the economy is fundamentally changed where we have much bigger problems. In the interim I will keep adding to my investments and keep a little perspective. Three weeks will not dictate my investing life.