The recent 2-day 10% decline was one of the quickest historical declines. It is reminiscent of the steeper, but similarly rapid, Covid-induced declines in March 2020 (down an unprecedented 34% in 33 days).
Let's look at the most recent "this time is different" unprecedented market event. At the beginning of 2020, we found ourselves suddenly faced with a one-in-a-hundred-year health pandemic. Worse, we had an unprecedented and prolonged shut down of the global economy. We had the deepest recession since the great depression, the unemployment rate hit 14.7% and the economy shrunk 3.5% — the worst year for economic growth since 1946! FROM MARCH 18, 2020, TO MARCH 18, 2021, THE S & P 500 had one of its best 12-month periods ever -- moving from about 2,300 to 3,900 FOR A 12 MONTH GAIN OF 70%.
IN OUR VIEW AND IN ALL OF OUR EXPERIENCE, THE REAL DANGER TO OUR WEALTH LIES NOT IN CATCHING THE NEXT 20% TEMPORARY DECLINE, BUT IN MISSING ANY PART OF THE NEXT PERMANENT 100% INCREASE! Even those who invested just before the 34% decline -- after last week's sudden 10% downturn -- experienced an average annual S & P 500 return of about 10% (from February 2020 to April 2025) -- at the upper band of the 8% -10% long-term rate we use for planning purposes.
BEWARE OF THE FINANCIAL MEDIA
Remember that the financial media is not capable of helping investors make wise decisions, nor are they even interested in that. Their ONLY objective is to sensationalize as much as possible to get more story reads and clicks so they can maximize their ad revenue — HARD STOP! This week, toxic messaging highlighting "two of the worst consecutive days for the market in history," increased chance of a recession, and stagflation may be around the corner!" will be spewed at us like poisonous venom. EXPECT, AS ALWAYS, THE LEVEL OF HYPERBOLE AND CATASTROPHISM WILL INCREASE IN DIRECT CORRELATION WITH THE LEVEL OF THE MARKET'S DECLINE. IGNORE IT!!!
Recession — two negative consecutive quarters of economic shrinkage have occurred about every 6 years since WWII, and we have not had one since 2020. Simply, one is due. It may or may not come this year and it is irrelevant to an investment plan. Further, historically, the S & P 500 has been up about 1%, on average, during recessions.
Stagflation — simultaneous occurrence of high inflation, high unemployment and economic stagnation (recession). The recent inflation reading was 2.8%, Friday's report on unemployment pegged it at 4.2% and recent real economic growth was 2.4%. These numbers can change, but ALL would have to increase meaningfully together to lead to stagflation. After the last meaningful period of stagflation in the late 1970s, the market experienced one of the best 20-year runs in history. Long-term wealth management plans and portfolios should never be changed in response to actual periods of recession or stagflation AND THEY MOST DEFINITELY SHOULD NEVER BE CHANGED IN RESPONSE TO FEAR OF SUCH EVENTS!
Remember, goal-focused, planning-driven investors have no new decisions to make in the face of current events. THEY MADE ALL THEIR DECISIONS WHEN THEY DETERMINED THAT TO FIGHT THE DISEASE OF MONEY, INFLATION, THEY NEEDED TO POPULATE THEIR PORTFOLIO WITH MUCH MORE OF THE INVESTMENT (STOCKS) THAT RETURNED 7% (ATER-INFLATION) FOR THE PAST 100 YEARS AND VERY LITTLE OF THE INVESTMENT (BONDS) THAT RETUREND LESS THAN HALF OT THAT — 3% AFTER-INFLATION. THE NEED TO HAVE MORE 7s THAN 3s NEVER CHANGES DUE TO CRISES, CRASHES, INFLATION, RECESIONS OR TARIFFS — HARD STOP!
We believe firmly that we are still in a secular (long-term) bull market. The third one in history. They have only ended on one type of fear — FOMO — when everyone is chasing one narrow idea and using their cash and even borrowing to chase it. Secular bull markets have never ended on fear of bear markets, recessions, etc... and when investors have hordes of cash on the sidelines. In our view, we are now resetting for the final leg or legs of this longest and strongest of the secular bull markets. This one began in 2013 and they have lasted about 20 years.
If you have not read our year-end newsletter THIS TIME IS DIFFERENT-which counseled specifically that investors should expect that the crises of the next 30 years may look very different than those of the last 30 years, please read it. If you already read it, please reread it. it speaks directly to the challenges ahead (emotionally) and how to prepare to overcome them successfully.
THIS IS AN EXCERPT FROM THE EARLY PART OF THE ARTICLE:
"Thinking about the next big block of time (the next 30 years, or so), the new world order is likely to be meaningfully different. One cannot predict exactly what this new world order will be, but it will likely be much more challenging. International conflict, protectionism and bad economic ideas and trends seem to be on the rise."
REMEMBER, NEVER SING THE FOUR WORD DEATH SONG OF THE AMERICAN INVESTOR — "THIS TIME IS DIFFERENT." SING THE REFRAIN OF THE SUCCESSFUL INVESTOR — "THIS TOO SHALL PASS"
Also, please tune in to our most recent Crazy Wealthy Podcast: