I TELL MY CHILDREN that they can’t possibly fathom the amount of information that they have in their hands. I’m part of the last generation—so-called Gen X, those born between 1965 and 1980—who actually had to trudge down to the library and pray it had the information we needed. Today, the internet provides it all in seconds.
I needed to change a leaking bathtub faucet. I’m not qualified to be a plumber. But I looked up a few YouTube videos and, within a day and to my wife’s delight, I had changed the faucet. There were at least 20 videos I could have perused and probably 100 articles from a Google search that were relevant.
Sometimes, however, the amount of information available is totally irrelevant to the task at hand. Want to learn how to ride a bike? You can look up every internet article and watch every YouTube video, but until you’ve fallen, scraped a knee, hurt your wrist or crashed into a tree (guilty), you don’t really know how to ride a bike.
The same is true for investing. You can read every Warren Buffett shareholder letter, John Bogle quote and Peter Lynch story, but until you’ve suffered a large drawdown, you have no idea how you’re going to react when the investment bullets start flying and the hedge-fund bots start selling en masse. As market technician Walter Deemer likes to say on Twitter, “When it’s time to buy, you won’t want to.” Objective data showing markets eventually recover and go on to new highs can’t compete with our emotional gyrations.
For me, that experience first came amid the Great Financial Crisis of 2008-09. During the earlier 2000-02 dot-com crash, I was young, dumb and thought money was for buying drinks and pizza. In 2008, however, I was married with two young children, a mortgage, and a career that was still trying to find direction. I had real money and dependents. I watched all my individual stocks blow up. It was then that I decided to go all-in on target-date funds and call it a day. I never sold any of my target-date shares. For my individual stocks, I didn’t need to—because those companies had declared bankruptcy.
I don’t remember all the details of 2008-09, but I distinctly remember the feeling. I was filled with dread. Financial markets were dead. A new depression was starting. The Federal Reserve had printed money like never before. I was lucky to have a job. The “new normal” (I despise that phrase to this day) was 1% to 2% stock returns. The ghost of 1970s inflation was coming back at any moment. The end of the American empire, with its foolish derivative financial instruments of mass destruction, was at hand.
As the saying goes, the best thing to do when you’re in hell is to keep walking, so I just kept working, raising my children and investing to the max in my 401(k). I don’t think I ever looked at our investment statements until the end of the year. Why bother with 1% to 2% expected returns? At the end of 2017, I noticed something odd. Our financial assets in the era of the “new normal” had actually quintupled. We were paper millionaires. I excitedly showed my wife. She blinked, and asked me to take out the trash and to try to get a stain off the ceiling of our minivan.
Fast forward to March 2020: I am again filled with dread. The world’s population, not just financial markets, was actually dying. A new depression was starting as the globe literally shut down business. In the months ahead, the Fed would print money like never before and Congress would inject trillions in stimulus. I was lucky to have a work-from-home job.
The new normal is 1% to 2% stock returns, we were again told. What did I do? Nothing. I’d been here before. I remember the knot in my stomach. I remember the headlines, down to the new normal. I didn’t need to see it on YouTube or read about it in The Wall Street Journal. I had lived it before and had the emotional scars to show for it. I knew how to ride a bike.
Today’s headlines are of a horrific invasion of Ukraine, a bear market in highflying Nasdaq stocks, raging inflation, a market superbubble and a correction in the S&P 500. It could get worse with mid-term election madness.
I won’t be selling, but rather buying. Why? I’ve lived this movie before, and I’ll probably live it again and again and again. The only thing for me to do is to take out the trash and, this time, vacuum my Subaru.
Tanvir – Great article. Like you, I cut my investment teeth in the financial crisis of 08-09. I didn’t sell and kept “walking” and now am retired with a sizeable nest egg. Today, I’m not selling. In fact, I have been buying all the way down in this market with some pretty good stocks. it’s hard to buy when everyone is selling, but experience tells us otherwise.
Great job Tony! I have to admit, I’ve been very tempted to buy some Facebook and Google in this downturn.
Timely article, Tanvir. I have weathered four market crashes. The 2nd week after I started working at Allied-Signal Aerospace Co (after graduate school) in October, 1987, Black Monday happened and Dow dropped over 22%. Colleagues who were close to retirement were in total panic. I didn’t quite comprehend the chaos that ensued. But it was a good time to start investing. The dot.com crash was painful. But I did nothing since I knew playing the long game was the only sensible option. The 2008-9 financial crisis wiped out ~50% of my retirement savings. At the time Deferred Compensation (457-B) option became available at the University of Florida. So I started maxing out on 403-B and 457-B options. I was fully invested in Vanguard total market fund and the more conservative Vanguard Wellington fund. Until March 2020 my account steadily compounded at about 14%. The Covid crash was brutal, but short-lived. Staying the course has been the best decision. I did make use of the option to move 457-B money into a self-directed account and rolled the money into Berkshire B shares. I felt Berkshire offers better value over the next decade than a standard S&P index fund. This may be a misguided view. However, I have followed and invested in Berkshire since the early 90’s and trust in the culture inculcated by Buffett. Berkshire may not beat the S&P index. But what I like is the predictable nature of earnings and competitive advantages built into the subsidiaries at Berkshire and its Fort Knox balance sheet, making it a good retirement vehicle. I will have to see how my experiment with Berkshire and S&P index funds fare over the next decade.
Wow, what a story! I cannot imagine losing 50% of a large nest egg. Great job in staying the course.
Tanvir, thanks for the timely and wise article. And my wife would get along well with yours and Rick’s.
Glad to hear your wife keeps you grounded, just like my wife. Great article. During the down periods that you reference I kept telling myself we are accumulating extra shares at bargain prices.
Tanvir – that conversation with your wife around taking out the trash was the best piece of advice among many pearls of wisdom found in your post today.
Jack Bogle’s time-tested advice to individual long-term investors during volatile market cycles: “Don’t do something. Just stand there!”…To which I would add Buffett’s sage wisdom: it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.”
Those desiring to reach back a bit further for some advice: 2nd Corinthians, 6:17 (KJV): “Wherefore, come out from among them, and be ye separate”
Given that the majority of HD readers are typically plan-driven, goal-focused long-term investors, market opportunities of this magnitude tend to only appear once (or twice) in a decade.
The future remains bright!
Thank you for the comment! My wife has zero interest in personal finance topics and my children run in the other direction when I talk about it so I’m left to offer my thoughts to the great community at Humble Dollar.