The last few newsletters have been about the conversion of accounts from TD Ameritrade to Schwab. With the conversion now in the rear-view mirror let’s focus on a couple of investing principles that seem to be top of mind for many investors.
A long-time investing guru, John Templeton, is credited with coining the phrase that “the four most dangerous words for the investor are ‘this time is different.’ In contrast, it is also said that “the four most important words for the investor are ‘this too shall pass.’
It is critical for serious money investors to (1) understand what these two phrases mean, (2) recognize how they are juxtaposed, and (3) see how they are relevant to today’s environment.
This Time Is Different
This is the lament of the investor who views today’s crisis du jour as something so unique in the annals of crises du jour that the market/country/world cannot continue its current long-term trends. For sure, it is always correct to ascribe uniqueness to the set of facts of today’s crisis because, in fact, today’s fact situation has probably never occurred before and therefore is really different this time, in that sense.
But I’m going to list a series of crises that have occurred during my lifetime. Each of these crises had a fact pattern that had never occurred prior, and each appeared to us to be insoluble at the time, and each time we thought to ourselves that “this time is different” as the markets suffered significant downturns:
- October 1973: Invasion of Israel by Syria and Egypt, VP Agnew resigns, OPEC’s oil embargo, and Watergate Special Prosecutor fired
- October 1987: Largest one-day drop in stock market ever
- 1998: Russian default, the Asian Contagion, Long-Term Capital’s collapse
- 2000: Dot.com bubble bursting, Enron scandal
- 2007-09: Global financial crisis
- 2020: Covid pandemic, lockdown of businesses, worldwide deaths
- 2022: Inflation and steep interest rate rise
What do these crises have in common? First, each fact situation was unique. Second, each crisis was thought at the time to be the end of something very important. Third, each crisis ended with life and the markets continuing their ever- upward path of solutions and innovations and progress.
This Too Shall Pass
Serious long-term investors know that the correct response to the danger-based concern that “this time is different” is a different set of four words: “this too shall pass.”
Of course, there is no way to prove in advance that this too shall pass but we can gain perspective and comfort in knowing that during the 50 years that have passed since the first crisis listed above the markets have responded in a way that should make you believe that these crises du jour do, in fact, pass over time. Here’s a factoid that should make a believer out of all of us:
- In January 1973 the S&P500 index stood at 108. By October of 1974 the market was at 62
- The S&P500 on Oct 13, 2023 stood at 4327
- So, despite all of the “this time is different” crises, had you invested $20,000 in the S&P 500 index in October 1974, today your $20,000 would be worth north of $3,000,000.
Many of you who have read my newsletters over the years may be recognizing how “this too shall pass” integrates with the three key principles underlying our investment strategies.
- Our first key principle is Faith in the Future, which is shorthand for believing that today’s problems will get solved, even if we don’t know how they will get solved.
- Our second key principle is Patience, which is shorthand for believing that today’s problems will get solved, even if we don’t know when they will get solved.
- Our third key principle is Discipline, which is shorthand for continuing to invest with tried-and-true strategies that have stood the test of time instead of continually looking for brand new strategies and ideas.
Until next month, JR