The financial system had nearly collapsed. The stock market, like the economy, was in deep distress. The S&P 500 was down 57% from its 2007 peak. There was a nationwide collapse in home prices and jobs were disappearing at a rate of 700,000 per month.
It was March 2009. It was also one of the best times in history to buy stocks.
In the ensuing decade, the S&P 500 index rose more than 300% since its bottom and, according to the Wall Street Journal, has generated more than $30 trillion in wealth. Adjusted for inflation, that is the most wealth created during any bull run on record.
It may be easy now to look back and believe that next time (and there will be a next time), you would recognize such a great buying opportunity. You would realize that governments wouldn't allow the financial system to collapse and you'd go all-in. But even if that were true (and we don't believe it is) would you have held on for TEN YEARS to reap the full benefits of the bull market?
Let's take a look back at the past decade.
Buying at the bottom
: Things had been deteriorating for months before the S&P 500 hit 676 on March 9, 2009. But would you have waited until then to buy? Stocks lurched lower after Lehman Brothers collapsed in October of 2008 and again after Congress rejected the TARP bailout. Contrarians who thought they timed it perfectly and bought at the October 27 low in 2008 went on to lose 20% by the time the S&P hit 666 in intraday trading in March of 2009.
Let's assume you timed it right and bought at the bottom. It's easy to say you would be a buy-and-hold investor, but you would have had to ignore a lot of bad news.
2010:
The Greek Crisis hit,
the Federal Reserve introduced an emergency bond buying program,
and there was a realization that the financial crisis would have long-lasting effects. (at one point, the S&P fell 17%)
2011:
The US came close to defaulting on Treasuries and lost its triple-A credit rating. The Eurozone crisis turned critical, and investors realized that China’s stimulus would have painful aftereffects. (between May and October the S&P was down 22%)
2012
: The Eurozone was on the brink of a break up and the news was unrelentingly bad.
2013
: The Taper Tantrum brought worries that the Fed might be about to kill the recovery by raising rates, pushing emerging markets into a panic. (the S&P was down nearly 10%)
2014:
An Ebola epidemic, US bombing of Syria and more Fed concerns, and the VIX index of implied volatility jumped above 30. (the S&P fell almost 10% in 18 trading days)
2015:
A Chinese stock bubble inflated and then burst, Beijing devalued its currency and an oil-price collapse brought fear of a new US recession. (Between the summer of 2015 and February of 2016, the S&P 500 had lost 15%)
If you made it through all that, you would have had to also ignore last year’s pullback. A volatility shock in February knocked 12% off stocks. Then in the fall, a bear market sent stocks sharply lower and S&P 500 recorded its worst December performance since 1931 and its biggest monthly loss since February 2009.
