“We have nothing to fear but the lack of fear itself.” – Walter Deemer
What a milestone. 40 years ago, this month, the Dow Jones Industrial Average was 1,082. 25 years ago, it crossed 10,000 for the first time. It’s a great time to reflect back on an amazing fact. The stock market empowers ordinary people to build extraordinary wealth.
But big round numbers are always a psychological yellow light for stock market participants. Whenever we cross a major barrier, it brings out anxiety-inducing thoughts like “How high can this market really go?”. Our natural inclination is to get a little more defensive and protect our gains, even though during the last 100 years, there have been more days making new all-time highs than days spent in a bear market. (thanks to Callie Cox for this nugget)
While it’s always important to avoid complacency, it’s also important to remember why we’re here. Ben Carlson from Ritholtz Wealth Management recently laid it out pretty nicely.
These aren’t feelings. They aren’t thoughts and prayers. These are facts. And although financial lives are empirically better than any time over the last five years, why doesn’t it feel that way? Because everyone of a certain age knows “this too shall pass”. Chuck Palahniuk has a great quote. He says, “It’s so hard to forget pain, but it’s even harder to remember sweetness. We have no scar to show for happiness. We learn so little from peace.”
The trade-off for investing remains the same at 39,999 as it does at 40,001. In Howard Marks’ recent memo entitled, “The Indispensability of Risk”, he writes, “you shouldn’t expect to make money without bearing risk, but you shouldn’t expect to make money just for taking risk. You have to sacrifice certainty, but it has to be done skillfully and intelligently, and with emotion under control.”
Strength begets strength. The bull market is still young relative to previous cycles. The stock market has never been negative in a year where a president is running for re-election (10 out 10 since 1950). Corporate earnings are at all-time highs. You get the idea. It’s foolish to think it will always be this way, but try to enjoy it while it lasts.
If you’re someone (myself included) who tends to see the glass half empty from time to time and focuses on the “unprecedented” geopolitical risks, inflationary pressures, or the unsustainable national debt, I’ll leave you with this:
This is from Harper’s Magazine. In 1847. (c/o Brent Beshore)
Talk soon,
Adam