One of the benefits of aging as an investor is that you accumulate invaluable experience and perspective by living through a lot of very bad economic and financial market events.
These include events when, in the moment, it felt like things had permanently taken a turn for the worse. But time after time, you're reminded that you can't keep the U.S. economy and stock market down for very long.
I like to reflect on those events and recall the unpleasant memories because it helps me better process current and future periods of turmoil and crisis. And the more I reflect, the more I feel like I understand why we keep bouncing back.
From the Asian Financial Crisis to the COVID-19 Pandemic
In the late 1990s, I was just another immature high school kid without many cares in the world. I didn't really keep up with current events. But I remember the Asian Financial Crisis because it was one of the topics in prayers my dad would give at his church in Kentucky. I'll never forget hearing "IMF" come up in those Korean prayers because it was so unusual.
Among other things, the Korean won collapsed by more than half against the U.S. dollar over a very short period at the time. This was a particularly big problem for immigrants closely tied to family back in Korea. I didn't quite understand it at the time, but I remember the mood being disturbingly gloomy for a while.
I don't have many memories from the Dot-com Bubble bursting. Back then, I had little interest in or exposure to the stock market, and neither did the people around me. But I do remember watching 9/11 live on TV in my dorm with my roommates at Boston University. I remember not being able to get a hold of family members in New York and Kentucky because the phones were overloaded. I remember the extreme range of reactions from my friends: some fled Boston out of fear; some used it as an excuse to skip some classes; some explored joining the armed forces. Everyone was rattled. Everyone felt less safe.
And for my college friends and I, it soon became clear that we would all be entering a tighter job market with an elevated unemployment rate. Things weren't great.
After graduating from college in 2004 and after months of searching, I randomly got a job as a contract paralegal where I got my first serious introduction to equity research. I quickly became hooked on learning about the what made the stock market move. In 2006, I got a job at Forbes Newsletters researching and writing up stock picks. I also enrolled in the CFA program that year, which helped me develop a sophisticated understanding of things like mortgage backed securities, collateralized debt obligations, derivatives, and value-at-risk models.
This education super-charged my fear and my feeling of hopelessness as the world tipped into recession in 2007 and spiraled into Global Financial Crisis (GFC) in 2008. The more I understood, the more I felt like there was no way out of it. And many pundits seemed to agree. I remember respected financial market prognosticators going on TV and proclaiming that the government's bailouts of the big banks, the automakers, and the GSEs were proof that it was "the end of capitalism."
It wasn't the end of capitalism, though many were convinced the housing market would never come back as we entered a "new normal" of slow growth. Another popular phrase in the wake of the crisis was "secular stagnation." Admittedly, I was sold on the idea that economic growth would forever be a long slog. You can't blame me. In 2010, I got laid off from my job and I re-entered a job market flooded with unemployed people with backgrounds in finance.
But the post-GFC recovery helped me appreciate the resilience of the consumers and businesses propelling the economy forward. I got a great job in 2011, and over the next decade my income soared. Those years were riddled with numerous macro hiccups, but nothing could keep the economy and the stock market from accelerating again and blasting through record highs.
And then came the COVID-19 pandemic.
Those first 6-9 months were surreal. I remember feeling like I was living a sci-fi horror film. At many points I thought this new strange way of life would be permanent. Meanwhile, I was constantly worried that the whole economy would collapse on itself.
The discovery of the vaccine certainly helped things turn around. Fast forward a few years, and most things in the economy are back to normal. Notably, cruise and air travel have more than recovered as most people have gotten comfortable again with being in tight spaces with strangers — unless it's in an office for work.
So despite the pain, the trauma, and even the loss of life, all these experiences eventually confirmed that we'll always bounce back.
People will always want things to be better 📈
The economy and the stock market have always had an upward bias.
This makes sense if you think about it. There are way more people who want things to be better, not worse. And that demand incentivizes entrepreneurs and businesses to supply better goods and services. The winners in this process get bigger as revenue grows. Some even get big enough to get listed in the stock market. As revenue grows, so do earnings. And earnings drive stock prices.
I can't imagine anything changing these attitudes. Sure, there will be periods of when we feel angry and hopeless along the way. But we're never gonna wake up one day and decide we have everything we want or settle on the idea that what we've got can't be improved on.
And there will always be a sense of urgency. Even during difficult periods, people understand that life won't wait. You're getting older. You're kids are getting older. You're parents are getting older. If you have the resources, you won't put your lives on hold. This is bullish as it keeps the wheels on the economy spinning.
Sure, many things change after all the events I mentioned. But things are always changing. Importantly, the changes that stuck have never prevent the economy and the markets from setting new records.
Where we are today
If you've been following the news at all over the past two months, you've probably heard at least a few folks talking about how the Trump administration's approach to trade policy is damaging the U.S.'s standing in the world while also threatening to send the global economy into recession.
As the stock market tumbled, phrases like "sell America" and "end of American exceptionalism" began to trend. Popular measures of investor sentiment tanked.
To be clear, I think the past two months created some damage, and we have yet to learn the extent of that damage. It's certainly possible that we're in a recession or headed for one. And it's certainly possible the stock market could take another leg lower.
But I'm nowhere near convinced that we're destined for a extended, multi-year period of turmoil and pain.
Our system is amazing at self-correcting. Whether it's through votes or something else, we always seem to find a way to get things back on track toward increasing prosperity and improving our standard of living.
And to repeat what I said last week: There's basically three scenarios investors always have to consider: 1) Things improve from here, and the market goes up; 2) Things get worse before they get better, which means markets could fall before resuming a more firm rally; or 3) Things get worse and never get better.
If we're facing scenario 3, then we may have bigger problems than stocks not recovering. But scenario 3 has never played out.
Scenarios 1 and 2 favor long-term investors. Maybe things get worse before they get better. (Note: Timing market bottoms is nearly impossible.) But staying long the stock market covers you in case the low of this cycle is behind us.
I'll leave you with Warren Buffett said earlier this month at Berkshire Hathaway's annual meeting:
"We're always in the process of change. We'll always find all kinds of things to criticize in the country. … If you don't think the United States has changed since I was born in 1930… We've gone through all kinds of things. We've gone through great recessions. We've gone through world wars. We've gone through the development of the atomic bomb that we never dreamt of when I was born. So I would not get discouraged about the fact that it doesn't look like we've solved every problem that's come along."
The 94-year-old investor has lived through everything, and he's made a fortune investing in the stock market along the way.
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