A Tale of Two Markets
In 1999 I was a successful investment banker. I worked 60+ hours a week, wore fancy suits, and bought dotcom stocks. Even better, we received our 2000 bonuses in February, with enough time to invest before the peak. In March, 2000, the dotcom bubble burst. In April I found I owed capital gains taxes from trading stocks that were now almost worthless.
Less than three months before, I spent New Year's Eve vacationing with friends who worked in tech. I heard about stock options. I heard about paper millionaires. They poked fun at me for being in a boring field like banking. I felt vindicated after the bust, but it was painful for me as well. Happily, I kept my job, and continued to save & invest, just not in tech!
It took 15 years for the Nasdaq to repeat the highs of March, 2000.
By the start of the Great Financial Crisis I had been managing bond funds for over half a decade. In fact, in 2006 & 2007 I was a CDO manager. I can bore you with that story another time if you wish, but CDOs were a huge contributor to the crisis. As CDO portfolio managers, we knew there would be trouble, but did not foresee the extent of the contagion.
Long story short, despite my well above average level of access to information, I still lost money, a lot of money. This time, on top of investment losses, I also lost my job.
In the post dotcom bust era, I only changed one thing. The dotcom bubble cured me of buying or trading individual stocks. It still took me another decade to embrace index funds, but progress is progress. Doing less was the right thing. Somehow I managed to ignore that lesson in 2009. By the time the market had bottomed out that March, I'd decided that I had enough. My crystal ball told me that the markets wouldn't recover for at least a decade. I was so convinced of Wall Street's weakness that I left my financial career to start a food business. Everyone has to eat, right?
Right around the bottom of the market I sold my stock funds & used the money to become an entrepreneur.
Despite a lack of income, for a while it looked like decent idea. Plenty of my friends in finance were out of work. The ones who still had jobs were overworked, and, uncharacteristically for Wall Street, underpaid. I had pivoted. Isn't that what they say you're supposed to do?
It may be tough to keep in mind now, given 2022 so far, but 2009 actually began the US stock market's relentless climb. Until this year, only a global pandemic could slow it down, and even then only for a short time.
Of course, I had actually divested right around those bottoms, locking in my losses. Then I proceeded to invest any money I could scrape together into a sushi business. This decision was the most costly thing I've ever done.
Fear not, I am enjoying advisory, and plan on doing it until I do retire one day. (Though that one day is quite far off, given that we have an eight year old!) So why the autobiography?
Down markets, inflation, political instability. It seems that everything going on nowadays is conspiring to make us act from emotion, not logic. Financial products & services salesmen know that too well. Fear sells, especially if they can convince you what their selling is, "safe." Fear may sell, but it also encourages selling.
Fear encouraged me to sell in 2009. Fear, and a belief that I knew something about the future.
Y’all know exactly where this is going.
I did not know the future. The money I removed from the market in 2009/2010, had it remained there in a simple index fund, would have paid off our house, covered our son’s school tuition, and left a nice nest egg for retirement. Of course an outcome this bad would be difficult for most people to duplicate. Not everyone can be lucky enough to sell at almost the exact bottom and then start a new business - one of the riskiest things anyone can do with their time & money. But even if you’re not, you can do a lot of damage to your long term financial outlook by making emotionally driven decisions.
To be sure, none of this makes it any easier to live through rising inflation & market downturns. I have to remind myself constantly what I can control & what I can not, because I feel a sense of real responsibility. Making a financial move because of what we’re experiencing in the global economy may absolutely be the right thing to do, but please be sure it lines with both your financial plan & investment policy statement.
If you need help with either of those, reach out to a professional.
