“Bull Market Shows Signs of Aging.” – Wall Street Journal, December 7th, 2009(!!)
If you look back at what was happening at the advent of the 2010’s, the global financial system had been on a shaky roller coaster over the previous three years and global central bank and fiscal policies were just starting to take hold (remember “TARP” AKA the bank bailout?). The global stock market was 10 months into a rebound but had a long way to go to recover its previous highs. The U.S. stock market itself was closing out the “lost decade,” where the S&P 500 Index had its worst decade on record, losing roughly 10% of its value over the span of January 2000 to December 2009.
From the vantage point of early 2010, things felt ominous. We started the decade with a lot of anxious people. You may have been wondering whether to stick with your investment plan or move into cash. Some decided to get out of the market and wait for prices to go down. That waiting game wasn’t made any easier as investors had to process an ever-present uncertainty arising from a host of events in the news, including an unprecedented rating downgrade of US Government credit, sovereign debt problems in the European Union, Occupy Wall Street, the Arab Spring, the ongoing Syrian civil war and subsequent refugee crisis, the Russian annexation of Crimea, the Brexit vote, the 2016 US presidential election, escalating tensions with North Korea, recessions in Europe and Japan, slowing growth in China, trade wars, yellow vests, Hong Kong, and bellicose actions between the U.S. and Iran! Despite the dire headlines that accompanied all these events, the S&P 500 Index gained 250% over the decade.
The modern news cycle is a profit-oriented machine. The adage of “if it bleeds, it leads,” is alive and well in a medium built on opinion, outrage, and mortality. This is not meant as a conspiracy theorist’s criticism of mainstream media, but a recognition of the DNA of news publications since the printing press unlocked its power. An editor’s job is not to recommend sound, long-term investment advice to the general public, but to compile the day’s most compelling stories that drive consumption of their medium. If journalists were in the business of advice, as a group they would rank amongst the worst financial advisors out there. It is this dynamic that led us to the main theme of this email.
We reflected on the headlines from the past decade (as noted above), and inevitably on current events unfolding at the beginning of 2020. Each of us noted that when you overexpose yourself to the news, you get depressed by it. A sense of unease, uncertainty, and hopelessness trickles into the periphery of your thinking. The lack of control that each of us has at the individual level feels unavoidable. Furthermore, the modern world comes with modern news outlets. We are surrounded with information, opinion, and social outrage. The point is to recognize when the news becomes overwhelming and step back from it. Instead, find the good news in your life. Think of the areas that are clearly in your sphere of influence. What is your own economic news? Promotion at work. Selling a business. Buying a new car. Retiring after a long career. These are stories that will have more of an effect on your immediate circumstances.
Looking back at how the decade ended for investors, the lesson from the 2010s was to be mindful of the news and stick to your investment plan. So, what should you do in the 2020s? Be mindful of the news and stick to your investment plan. Reduce your anxiety by accepting the market’s inevitable ups and downs and use it to your advantage, i.e., when stocks sell off, rebalance from bonds into the now cheaper stocks. Trust your plan, focus on what you can control, and you’ll find you have more time to do the stuff you love.
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