Something that caught our eye recently was a New York Times article entitled “Once You’re out of the Market, It’s Tricky Getting Back In.” There are some oversimplifications in the piece, like a quote that begins “Jumping out of the market is a mistake”. However, we wholeheartedly agree that “…getting back into stocks can be a more difficult decision than leaving the market in the first place.”
In March 2020, at the height of panic selling, investors pulled $326 billion from mutual funds and ETFs. Although it ended more than a decade ago, the global financial crisis was the last real bear market. As we now know, many investors who exited the market back then never had the stomach to re-enter, much to their detriment, even if their initial decision to exit the market was the correct one. As we have seen, over the long-term, only having a risk-off plan could be worse than having no plan at all.
Although remaining out of the market was a mistake, and a costly one, there was plenty of cause for investors to be fearful at the time. Younger investors may or may not have an appreciation for the pervasive fear that existed from Main Street to Wall Street. There were several events surrounding the financial crisis that had never occurred and/or were believed to be “impossible” e.g., the fall of Lehman Brothers and the nationwide collapse of home prices. At the time, the notion that the global economy could collapse did not seem farfetched.
On the TODAY show on October 6, 2008, at which point the S&P 500 was already down more than 32% from its 2007 peak, Jim Cramer said “Whatever money you may need for the next five years, please take it out of the stock market right now, this week. I do not believe that you should risk those assets in the stock market right now.”
Even after the US equity market had hit what we now know was its bottom in 2009, there was still no shortage of headlines that would have given all but the most steely, disciplined investors qualms about deploying capital into the market. An April 3, 2009, New York Times headline read, “663,000 Jobs Lost in March; Total Tops 5 Million.” Chrysler filed for bankruptcy on April 30th, followed by General Motors in early June. All of this to say, that even as the recovery of the US equity market was underway, there were still plenty of reasons to be skeptical that the worst was over. We got caught up in the fear ourselves.
Hindsight, as the saying goes, is 20/20, and as a result, it’s human tendency to believe that the past was predictable and that we would have sidestepped the pitfalls that others fell victim too. However, many of you are probably feeling a bit more circumspect right now with the heightened levels of uncertainty in the market and the March sell-off still fresh in our minds. Investors who went into March without a plan for raising cash and rode the market down and back up may be feeling like they dodged the proverbial bullet. Others who exited positions without a plan for re-entering may be looking at the current market environment in which the Nasdaq 100 NDX hit a new all-time high 10 days ago while unemployment is north of 10% and feeling only fear – fear of missing out (FOMO) and fear of getting back in just before the market pulls back. If you don’t have a plan at all or if you only have a system for getting defensive but not for putting the offense back on the field, this is the perfect opportunity to address that – before hindsight bias sets in.
At White Oak Financial, we use a proven system for both offensive and defensive times, and it has served followers of this system well for decades since 1955. Although we consistently look for ways to improve our knowledge of the tools we use, no market indicator is perfect, and it should raise immediate red flags if anyone says they have one. If someone had a system for perfectly identifying market tops and bottoms, why would they share it when they could earn virtually unlimited sums by keeping it to themselves and trading on it? Having a system, though, means that we do not have to make investment decisions by listening to the talking heads on TV, to newsletter writers who make most of their money on your subscription fees as opposed to their good investment decisions, to our neighbors who are subject to the same fears as we are, or to our own gut drivers of fear and greed. The market is going to do what the market is going to do, and you cannot predict it with any consistent accuracy. We just need to know what IS happening with stock prices, not necessarily why, and respond to it. The “why” is usually only obvious in hindsight.
Let us know your thoughts or concerns. We take our fiduciary obligation to our clients seriously and appreciate the continued trust and confidence.
