Mr. and Mrs. 401(k) are slowly but steadily capitulating. That is just a fancy word for “selling en masse” for no other reason than valuations continue to drop.
This is how corrections tend to end, or as some of us consider it, how the next trend up in valuations start. Try to make a mental image of a long train leaving the station for the next leg higher with as few passengers (investors) on board as possible. That is what fear does.
I remember back in 1982 the investor train started leaving for a huge run up in value with almost no one on board. After all, the Dow Jones Industrial Average (DJIA) was at 777 and there was no way it would ever go above 1,000, “ever”!
In 1983, I read Sir John Templeton’s new book titled Dow 3,000. By 1990 no one was listening, as the train again left the station with few investors abroad. Sir John was off on the 3,000. By 1990, as the Dow “only” made it to 2,999.75!
On October 19, 1987, I was at my desk watching the Dow lose 22% in six hours. I put in a “market order” to sell 1,000 shares of Apple Computer and it was not filled – zero buyers. Not one investor on the Dow train as it left the station to all-time highs just 7 months later.
You may remember in the early 1990’s bank failures were all the rage. At first, there were 700 bank failures than 1,000. At bank loss 1,500 there was another empty Dow train leaving the platform. Per Sir John, above the Dow was right at 3,000. Five years later the Dow was back up to the 5,117.12 level. Too late to board the train, they all said. Next stop was Dow 11,000 in 1999.
Sorry I skipped over that 1994-1995 outlook from analysts of the mega recession staring us down. That weirdness lasted 1 ½ years and the recession never happened. What did happen was five straight years of positive returns in the high teens to 20% per year.
If you are doing the arithmetic above that 1995 + 5 years lead us right into the “Tech Wreck” starting in March of 2020. It was real and pretty far from funny, like now. It lasted until the fall of 2002.
I could add more, but I am sure you get the idea. “We would never ever – EVER- recover”. Those monsters, like the one we are now in were just too big to recover from.
Sure! Just nine months ago, this monster started from an all-time high Dow of nearly 36,000, and today the investor train has few people left on board. Our client family has not gone unscathed on this pullback. We did intentionally raise some cash as a shock absorber. As much as I understand the key turning points in valuations noted above. I also understand our priority is to “not make you poor”!
Please don’t miss your bigger financial future but do have a plan. A financial plan that you can trust. Promise yourself and your future self that you will not waiver. A financial plan where all your effort will be on pursuing your goals calmly, logically and patiently over time. If you don’t have one of these, call me and we’ll update your current plan, or create a new one that will work better for you.
As always, our team and I are available to discuss this concept with you. Just call, email or stop by the office and say “Hi”!
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Investing involves risk. Loss, including loss of principal, may occur. No strategy assures success or protects against loss. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.