Nineteen years ago

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Nineteen years ago today marked the worst time to invest in the S&P 500 since the end of World War II. On Tuesday, October 9, 2007, the S&P 500 was at 1,565. And for the purposes of this communication, let’s say you were fully invested in the S&P 500 that week.

For almost a full year—because of news stories about Wall Street bankers doing stupid things with subprime mortgages—your investment account would have slowly decreased in value, month after month. Then Lehman Brothers filed for bankruptcy in mid-September 2008, and the bottom fell out of the market.

Fearing Worse to Come, Investors Drive Dow to Biggest Loss Since '01 was the New York Times headline on September 16, 2008, and those losses continued until the market finally bottomed on March 9, 2009, when the S&P 500 hit 677. A 57% drop over seventeen months. With dividends reinvested, a million-dollar portfolio turned into a $447,500 portfolio.

I’m not writing this to scare you. Nor am I writing this to suggest we make changes to your investment portfolio. Your investment portfolio is aligned with your specific financial goals/plans. And you also aren’t fully invested in the S&P 500. You’re globally diversified and any money we know you’ll need in the short term isn’t subject to a lick of volatility.

I’m writing this for three reasons:

1. Temperament and patience are two of the three qualities that make the best investors the best. That million-dollar portfolio wouldn’t become a million-dollar portfolio again until 2012. But by 2021, fourteen years later, that portfolio would be worth just over four million dollars. Despite investing at the worst possible time, that portfolio doubled twice and still earned roughly the same average annual return the market has provided for over a century.


2. Optimism is the third quality that makes the best investors the best. Insoluble problems get solved and crises end. Case in point: today that million-dollar portfolio would be worth just over seven million. And that’s after the Great Financial Crisis, the European Debt Crisis, the Christmas Crash, the Pandemic Plunge, the Inflation Issue, and the Tariff Tantrum (my goodness financial media loves alliteration). Never forget that every anticipated market crash sounds like the end of the world while every past market crash sounds like the opportunity of a lifetime.


3. We’ve had one hell of a run since the Great Financial Crisis. The last time the market behaved like this was coming out of the 1970s stagflation era. A million dollars invested in the S&P 500 at the start of 1982 was worth over twenty million by 1999. And you only had to endure one negative year along the way (-3.1% in 1990). That’s 20x growth with one negative calendar year. That’s incredible growth. But then the Tech Crash hit, followed by 9/11, followed by Enron, followed by WorldCom. The S&P 500 did not grow from 1999 to 2009. That’s why they call it “the lost decade.”

During that lost decade, a ton of investors lost their temperament, patience, and optimism. Every single investor I spoke with between 2010 and 2013 (when the market took off again) told me they hated the stock market. They told me it was gambling at best or a scam at worst. And those brave enough to invest only ever asked one question, “how did it do in 2008?” But past performance of a particular investment means nothing about its potential future returns. They should have just stayed invested and kept investing.

And that’s the message I’m trying to convey: when you invest in the stock market you invest in companies. And companies earn profits. Profits are what we in finance call earnings. And those earnings ultimately drive the stock market higher. Not the macroeconomy, not politics, not interest rate policy, not geopolitics. Earnings.

The S&P 500 has grown by almost eight times over the last twenty-five years, and the earnings of those companies are up close to nine times. Let companies deal with the macroeconomy, politics, interest rates, and geopolitics. It’s their job to provide you, the best investor, with earnings. All you need to do is be patient. And never invest money you know you’ll need within two or three years.