Too Many Geniuses

See disclosures below and here.

Since the bottom of the Great Financial Crisis equity investors have had it too easy. Buy the dip, wait a few months, then feel like a genius. And there are too many geniuses right now.

Don’t give me the “look at 2022” or the “look at the last two spring seasons (Tariffs and Iran).” Don’t even give me “what about the Covid Crash of 2020.” Those were short, sharp, and quick-to-recover markets. You’re not brave when you’re immediately rewarded.

The market tends to be vicious, turn on a dime, and make you feel like a moron. But it’s been awhile.

Let’s say you got a $100,000 inheritance at the start of 1982 and put the whole thing into the S&P 500. By the end of 1999 that $100,000 has grown to be worth over $2 million, and you only had to endure one negative year along the way: -3.1% in 1990. Note: I’m using total returns (price appreciation and dividends). Your money grew by 20x and you hardly saw a lick of volatility.

I can’t stress how ridiculous that market was, so I’m going to say it again: your money grew by 20x and you saw one negative year. One.

But then the Tech Crash hits. And 9/11. And Enron and WorldCom. Your investment drops three years in a row. By 2002, your $2 million is now worth about $1.33 million. The good times are over. But because you’re a serious long-term investor, you stand fast. Even when everyone around you is throwing in the towel.

Things eventually turn, and by 2007 your investment is worth close to $2.5m. The good times are here again. At least you think they are because then the Great Financial Crisis hits and your portfolio drops by close to a million bucks, down to $1.5m.

At this point you’re struggling. You’re fantasizing about those great times from the first eighteen years (82 to 99) of your investing journey. Your brain messes with you and makes you realize you’re now worth less than you were nine years ago.

But again, because you’re a serious long-term investor, you stand fast. And the market rewards you, going on another tear almost eighteen years later to today, in 2026.

I hope and trust you see what I’m getting at.

The S&P 500’s hundred-year total return is about 10% annualized. For the last eighteen years it’s been growing at closer to 15%. From 1982 to 1999 it was growing closer to 18%. Then look what happened: from 1982 to 2008 it grew at about 10%, its long-term average (I know I’m cherry-picking by using the end of 2008 but give me a break).

For the market to come back to its historical long-term average, it would take something like we saw between 2000 and 2008. But neither I nor anyone else knows what will cause it, when it will happen, and how bad it will be.

So let’s stick to being serious long-term investors who stand fast, shall we?

And that initial $100,000? Had it never been touched, it would be worth north of $17.5 million today (October 5th).

Disclaimers: Past performance is not indicative, and is no guarantee, of future results. The value of investments, and the income derived from them, can go down as well as up, and investors may not recover the amount originally invested. The S&P 500 is an unmanaged index of large U.S. companies and cannot be invested in directly. Index returns do not reflect fees, expenses, commissions or taxes, which would reduce returns. Total return assumes reinvestment of dividends.

The example above is hypothetical, based on historical returns in US dollars and does not represent any actual investment or client account. It does not account for taxes, fees, or inflation.

S&P 500 information courtesy Nick Maggiulli’s website and Slickcharts.