By: Jason Print, CFP®
Co-CEO
As I write this, the markets are delivering a great performance, and unless something shocking happens, it will be two years in a row of solid stock market returns. I think of all the pundits who recommended moving to cash in 2022 (right around the market lows) in anticipation of a recession. As those fears begin to fade, it strikes me that optimists usually win in the long run.
Now, I don’t want people to get the wrong idea. We will certainly have a recession at some point, and we will definitely have another bear market similar to that in 2022. Statistically, bear markets
happen about once every four years. Prior to 2022, we had the COVID-19 crash and a short-lived bear market.
Timing the market is extremely difficult. However, we typically have a recovery on the other side of these pullbacks. This is what’s easy to lose sight of. Oftentimes, most people don’t believe it when it starts to happen. It may seem like it will take many years to recover from the losses. This reminded me of a famous J.P. Morgan story from many, many bear markets ago.
My Favorite J.P. Morgan Story by Mark Skousen
In the early days of the twentieth century, when J.P. Morgan ruled Wall Street, a visitor came to the city. He was a commodity trader from Chicago and a long-time friend of Morgan’s. He was what might be called a “perma bear” following the Panic of 1907.
No matter how high or low the stock market went, his outlook was pessimistic – another crash, panic, and depression were just around the corner.
This was his first visit to the world’s greatest city. He arrived at 23 Wall Street and was ushered into J.P.’s spacious office, which overlooked the Exchange on one side and George Washington’s statue on the other.
They immediately began talking about the markets, Morgan being bullish as ever, and his friend being his usual bearish self.
“J.P.,” he said, “the news overseas doesn’t look too good.”
“A buying opportunity!” responded Morgan.
After an hour of friendly disputes about the markets, his guest to join him for lunch. They walked outside and started moving up toward Broadway. As they did so, his friend couldn’t help but admire the skyscrapers that dotted the Manhattan skyline. Morgan pointed out the Singer Building, the Woolworth Building across from City Hall, the famous three-sided Flatiron Building, and the recently completed Met Life Tower rising 50 stories high, the tallest skyscraper in the world at the time. His friend was duly impressed, saying he had never seen anything like it, not even in Chicago.
Finally, J.P. Morgan stopped his friend and said, “Funny thing about these skyscrapers – not a single one was built by a bear!”
I often look at the Forbes 400 list – not out of envy but out of curiosity. How many times were the people on this list written off by society, friends, and mentors? How many times were the
companies they owned days away from bankruptcy? A large number of them went through bankruptcy before finding success later on.
After the dotcom crash in the early 2000s, Amazon’s stock price was down more than 90%. Many doubted that the company would be able to make a profit with its business model. Amazon’s market cap on December 31, 2001 was $4.02 billion. That’s still quite a bit of money, but the market cap today is over $2.5 trillion.
Elon Musk admitted several times that Tesla was about a month away from bankruptcy in 2017 following five straight quarters of negative free cash flow.
I’m certainly not recommending that people go out and buy Amazon or Tesla. Nor am I recommending they move more aggressively into stocks. Quite the opposite, in fact.
After two years of great market performance, it’s a perfect time to speak with your advisor about what your target allocation should be for the future.
When bad news hits, pessimism can be seductive and lead us into decisions we wouldn’t make when optimism reigns. Now is a great time to have a conversation about what to do when the next disaster strikes, how to get through it, and what the long-term plan should be. It’s important that the plan we have in place allows us to sleep through the night in uncertain times so we stay on track when the sun rises again
