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How It Happens

William Ehart

THERE’S A SCENE in Three Days of the Condor, that very ’70s, America-in-decline movie, where the CIA is the bad guy and Robert Redford’s character is in danger of imminent extinction.

Max von Sydow’s character Joubert—the Alsatian assassin—warns him that he has “not much future.” Then he calmly describes how the CIA will come for him.

“It will happen this way,” Joubert says. “You may be walking. Maybe the first sunny day of the spring. And a car will slow beside you, and a door will open, and someone you know, maybe even trust, will get out of the car. And he will smile, a becoming smile. But he will leave open the door of the car and offer to give you a lift.”

Let me paraphrase Joubert and tell you from experience how Mr. Market will occasionally come for you and try to kill your financial future.

First, the market will fall far enough that investors start to be concerned. Not you necessarily, but some chatter begins. Worries are expressed. Theories are floated explaining why the market is down, and going to fall further.  

Today, that might be the inflation narrative. Both stocks and bonds are down in 2022. At one point in January, the S&P 500 was off 10% from its high. But you know that happens to stocks every other year, on average. You buy the dip.

Less frequently, the market will fall 15%. Now those predictions of big trouble get louder and more convincing. Still, you’ve seen this before. You buy more. Like Redford’s character—codenamed Condor—you’re still one step ahead.

But once in a while, the market will drop 20%, then 30%. And at least once in your investment career, the bottom will seem to fall out. In mine, I’ve lived through:

  • 2000-02, when the shares in the S&P 500 fell 49%. The index is now more than 700% higher, including dividends.
  • 2007-09, down 57%. It’s again more than 700% higher.
  • February-March 2020, down 34%. It’s now 100% higher.

The further the market falls, the more prescient the doomsayers look. What are they saying now? That your past gains were based on easy money. It’s all a house of cards. America was living on borrowed money and borrowed time. Twenty-five-year-old crypto billionaires? Meme stock millionaires? You should have seen our comeuppance coming.

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Hedge fund billionaire and author Ray Dalio contributes a doomsday scenario: America could collapse within 10 years because of populism, inflation and war. This time, the market won’t recover.

Maybe those close to you start sounding the alarm, too. How will we ever retire? You feel like you better get this right. You may be ready to accept a ride from a friendly face and drive away from trouble.

Maybe you’ll listen to a friend who sold everything when the news turned scary. Why didn’t you? Or perhaps a familiar Wall Street strategist or TV commentator will suggest bailing out. Or a legendary hedge fund manager in the high-brow financial press.

They’ll say you can sidestep further declines, that buy-and-hold is dead. They’ll say you need to be in Chinese shares, gold, commodities—all the usual suspects. Maybe crypto is the future after all. Your own ego begins to convince you that you can call the next move.

Stocks are obviously headed lower. It’s time to sell, to get a ride out of Dodge, even if just for a little while. This is exactly where Mr. Market wants you.

Everything you think you know about what’s coming next was planted in your head: It took root because it seemed to explain the recent past. This is how Mr. Market, with all his multiple personalities at cross-purposes, weeds out the weak and the wrongfooted.

Yes, Mr. Market can be your best friend, compounding your wealth over decades. But he’s also a remorseless assassin, occasionally—inevitably—destroying fortunes large and small, destroying the financial futures of the greedy and the innocent alike.

But just like Three Days of the Condor, this is a movie we’ve seen before. The lessons of market history: Betting on a worst-case scenario is a bad bet. The market has always come back. Don’t risk selling near the lows, the point of maximum fear.

In all likelihood, you will suffer a permanent loss of capital as you miss the rebound because the market is never going to seem safe until a new bull market is well underway. Then you may hear Joubert’s words: “You were quite good, Condor, until this. This move was predictable.”

William Ehart is a journalist in the Washington, D.C., area. In his spare time, he enjoys writing for beginning and intermediate investors on why they should invest and how simple it can be, despite all the financial noise. Follow Bill on Twitter @BillEhart and check out his earlier articles.

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Michael
Michael
9 months ago

Happened to re-watch this film two days ago. An apt analogy. Even more so for the extreme market volatility of the EM country where I reside.

Ben Rodriguez
Ben Rodriguez
9 months ago

I hope to remember to read this article when the time comes. Also, that scene was parodied in Seinfeld to hilarious effect with Newman and Kramer.

Catherine
Catherine
9 months ago

Love that movie! Novel metaphor.

The Friday before Black Monday, 1987, the US market experienced a 4.6% one-day drop, its first ever triple-digit loss, a record broken the very next trading day. Everyone was talking over the weekend, what to do on Monday. Including my brother and I. We didn’t see any alternative place to park our money, not knowing how long the slide would take to resolve. (Knowing that a 50% drop requires a 100% return before reaching the starting point.) Rather than bolt, we decided to wait it out, including reinvesting dividends and new savings until it was over, long or short. We avoided the worst of the bloodletting by not participating in the selloff.

Our parents grew up in the Great Depression, so we knew trouble could last a while. We didn’t panic, anyway. It’s not useful. We might have done the wrong thing, but at least we did what we thought best, as small investors, talked it over and looked to act or not act, on the decision we were making based on our shared understanding and known strategies.

Some of Warren Buffet’s famous comments help at times like this. Paraphrased, “Whether stocks or socks, I like buying quality, when it’s marked down.”
Also, “Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.”

Following that second piece of Buffet guidance, the two of us are now unlikely to experience financial distress in our retirement years. Not crypto-millionaires or any kind of fast money, but slow money also pays the bills.

Bob G
Bob G
9 months ago

Great reminder. As with all significant events in my life, I remember exactly where I was and who told me on “Black Monday”, October 19th, 1987 when the Dow dropped 508 points (22.6%). Today’s equivalent would be a 7,684 point drop. Trust me, you’ll get a little nauseous. Thankfully, I hung in there (it was too late to sell:) and have been richly rewarded.

B Carr
B Carr
9 months ago

“… for that day …”

AmeliaRose
AmeliaRose
9 months ago

“Stay the course.”

John Goodell
John Goodell
9 months ago

Both HD articles today were top notch.

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