Speed

What a year in the markets.  It started with the onset of the great market panic that began in February/March. And that ended when the US Stock Market regained its pre-crisis highs only recently (source:  Thomson, Inc.).

A few enduring pieces of knowledge:

• No amount of study—of economic commentary and market forecasting—ever prepares us for really dramatic events, which always seem to come at us out of deep left field. That means trying to make investment strategy out of “expert” prognostication—much less financial journalism—always sets investors up to fail. As my father used to say, “Turn off the TV!” Instead, having a long-term plan, and working that plan through all the fears (and fads) of an investing lifetime, tends to keep us on the straight and narrow, and helps us to avoid sudden emotional decisions.
• The stock market went down 34% in 33 days (source: Thomson, Inc.). None of us have ever seen that kind of a decline happen that fast before. The speed of the decline was Usain Bolt-like.  But the depth of the decline (-34%) was just about average.  Why was the depth about average?  Because the S&P Index has declined by about -33% on average every five years or so since the end of WWII. But in those 75 years, the S&P Index has gone from about 15 to where it is now at about 3,700 (source:  Thomson, Inc.). The lesson is that, at least historically, the declines haven’t lasted, and long-term progress has always reasserted itself.
• Almost as suddenly as the market crashed, it completely recovered. And as it recovered, the news concerning the virus and the economy continued to be UGLY, even as the market came all the way back. I think there are actually two great insights here.

(1) The speed and trajectory of a major market recovery very often mirror the violence and depth of the preceding decline.

(2) The stock market most often resumes its advance, and may even go into new high ground, WAY before things feel better. If we wait to invest until things feel better, history tells us that we probably have missed a very significant part of the market advance.

2020 was the kind of year which turned novice investors into grizzled veterans, if they remained disciplined and followed their plan.

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