January Update, 2020: What A Difference A Decade Makes

Another year in the books and the 2010s have slipped away with a quiet boom in equities. The next weeks will be full of stock market projections for the year and decade to come. We thought it would be fun to look back and give some basic observations of what has happened in the past 20 years: it’s safer to say what has happened than forecast the future.

One of the many sayings in investing lexicon is that if you take the long-term view, investing in stocks is a no-lose proposition. The popular mantra is ‘buy cheap index funds and get rich’. One company in Canada even says, “It’s simple. Get rich while you sleep”. Let’s look at the last two decades and see how that worked out.

Here’s how the decade 2000-2010 looked for the S&P 500:

Business days: 2515
Starting value on Jan 1st, 2000: 1469
Ending value Dec 31st, 2010: 1115
Points lost: 354
Points per day: (0.14)
Number of up days: 1312
Number of down days: 1203
Total points on up days: 13237
Total points on down days: 13591 

Suffice it to say that the first decade of 2000 was rough. It started with the tech crash of the early 2000s and ended with the financial crisis of 2007-08. The market ended the decade lower than it began by 24%. Ouch! Getting rich while you slept was a nightmare. The compounded NEGATIVE return was 2.72%.

As with most things in life, timing is everything.

Here’s how the S&P 500 looked for the decade 2010-2020:

Business days: 2516
Starting value on Jan 1st, 2010: 1115
Ending value on Dec 31st, 2020: 3230
Points gained: 2115
Points per day: 0.84
Number of up days: 1380
Number of down days: 1136
Total points on up days: 16048
Total points on down days: 13932 

That’s a much better decade with a compounded positive return of 11.22%. It was made all the easier by the horrible 2000s, proof that buying stocks when it’s horrible is a good idea.

If you stayed invested for the full 20 years, you had a compounded return of 4.02%. I would hazard a guess that not many would feel satisfied looking back and recalling all the angst incurred for the reward gained. It took a lot of fortitude to hold on during the ups and downs. To our mind, this is one of the best examples of where an advisor can act as ballast when rough seas occur.

So, the big question is: what’s in store for the next 10 or 20 years? Given the poor track record of all forecasters, we are reluctant to take a stab at the forecast. We think it’s safe to predict more turbulence ahead and the need for a steady-handed approach to portfolio management. Given the strong returns earned in the past ten years despite modest economic growth, it is also probably a safe assumption to think that we are due for some tough sledding. That means not getting too excited about both good and bad forecasts.

Keeping your investments balanced and in good businesses that are equipped with strong business models, that are investing in the future with strong earnings and balance sheets, has always and will continue to be a must. High valuations also mean taking a tactical approach to managing one’s investments, being very discriminating and disciplined in managing one’s exposure to risk using conservative valuations and assumptions as rules.

Twenty years ago, Warren Buffett was chastised for sitting out the tech boom and so, he missed the bust. Ten years ago, he was busy investing at the bottom of the market and he was a genius. Today, Warren Buffett is sitting on $120 billion in cash and he is being chastised for his caution. We like Warren’s style. Like Warren, we like what we own but we will not part with your hard-earned cash until we see a little fear. We do not know what will cause fear, but investors have a habit of going loco not just to the upside but to the down as well. Fear and greed are constant combatants in the investing world and fear has been in hibernation for some time.

The past twenty years prove that keeping one’s head while others ride the waves of human emotion is a sound strategy. We may not beat the market, but we know what we own, and we know our job is to earn you a fair return and keep you calm.

The Roaring Twenties: will history repeat?

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