- the source for market opinions


January 7, 2016 | Perspective

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


Some days you never forget.

It was a Monday in mid-October twenty-nine years ago. Outside my office in the newsroom sat a state-of-the-art wire machine installed so I could have a direct connection to the stock markets, and pick up breaking financial news long before it would show up on the screen of my 84-pound IBM terminal with the loopy, flashing orange cursor.

The Dow machine came complete with a bell. Yes, a bell. Like a cow. When something major happened, it rang.

So the noise started in earnest around noon, and was pretty much constant by four in the afternoon. Markets were not swooning, crumbling or crashing. They were imploding. By the close of trade, the Dow had shed almost 22.61% of its value – the greatest loss in history. By a long shot. That compared with a declines of just 6% or 7% leading into the Great Depression of the 1930s, (or 2.3% today) and everyone was stunned.

As the Dow machine spewed out an endless ribbon of four-inch-wide newsprint covered with ALERTS and BULLETINS, a crowd formed around it – editors, reporters and newspaper execs who now expected me to tell them what it meant.

“I think we’re screwed,” I might have said. And I trotted off to the photo librarian to gather pictures of homeless, hopeless, unemployed wretched guys lined up at a soup kitchen in downtown Toronto in 1933.

To this day I regret publishing them in the mass-circulation paper the next morning. What an idiot. But then, I was just being human. And learning.

Ten years ago Dave died at 75 years of age. He was a salesguy and left Sue, ten years younger, a small house and a single $50,000 Canada Savings Bond in a metal box in the furnace room. She’d been at home for years and had but a modest monthly CPP cheque. So she sold the house and, as a neighbour, asked me what to do with the $350,000 she now had.

I set her up with a trusted, ethical, conservative advisor who put here into stable funds and arranged a monthly draw to pay her rent. Then 2008 happened. Markets tumbled. Sue’s funds lost about 25% of their value and the advisor told her to ignore things. They’d come back. Markets lay eggs sometime, but history showed they always recovered.

Sue freaked. She sold at the bottom. She moved what was left into her savings account at CIBC and for the next six years she made regular withdrawals – ever smaller – to live on. Without any growth in her money, she ran out of it about a year ago. Her situation now is appalling. And it was self-inflicted. She was just being human.

As you may know (or not), in 1987 markets roared back more than 10% in one session just two days after they had plunged. Within months, the loss was erased. Also in 2009 and 2010, as Sue’s money sat moulding in a bank vault, investors reaped a windfall return as confidence and equity values soared. Those who sold in the downdraft were creamed. Those who bought from the sellers prospered.

Remember these things as you read the idiot comments published on this blog by people you’ll hopefully never meet.

For example, with regard to the American market, consider history before you get too squirrely. Without over-complicating the matter, look simply at full, calendar-year returns. How often does the market trade higher? Over the past 75 years, more than 73% of the time. In other words, the odds are clearly in your favour that during any given year, you’re likely to make money.

If your holding period is longer—10 years for example—the odds of a positive return are even more stacked in your favour. The S&P 500 virtually never records an annualized loss over a rolling 10-year holding period. Historically, the odds of the S&P 500 recording an annualized positive gain over 10 years are 90%. Create a balanced portfolio with some bonds and fixed income exposure to offset the negative equity periods and your odds of recording a positive annual gain increase even more.

So if you have a portfolio like that, chill. Be objective, not emotional. Consider buying when others are moaning and whimpering. Never make big decisions when asset values are plunging or leaping, because the current situation will not last. Keep your eye on the day you need the money, not today. If you’re investing for a down payment in five years or retirement in ten or your kid’s education in twenty, why are you stressing now? Get some help. Turn off BNN. Stop reading pathetic financial blogs. Especially the damn comments.

Above all, recognize that fear is the dominant human emotion. Bigger than love. Anger. Hunger. Envy. Sex. Even fondling puppies. We fear loss more than we enjoy gain. We’re also victim to recency – we believe things that go up (Vancouver houses) will go up forever. Or that things going down (Chinese stocks) will go to zero.

We actually suck at investing. It’s why most people are financial failures. A few learn that early, and change. Others don’t, and become Sue. Your choice.

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January 7th, 2016

Posted In: The Greater Fool

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