February 28, 2020 | The Big Ding

This story has been told before here. But tough. Listen to it again.

My first market bloodbath was in October, thirty-three years ago. I was the hotshot, know-everything, financial-guru-editor-columnist at a large daily newspaper. In my office was a big metal box which spewed a continuous ribbon of newsprint covered with breaking news headlines, market data and bulletins. This Dow Jones terminal was the candy-ass of technology at the time. It even had a bell. When something awesome was happening, it dinged at me.

So the bell started in the morning and basically continued all day. Markets were free-falling and back then none of today’s trip mechanisms were in place. The selling was relentless and historic. By the time the trading ended Wall Street had shed 22.61%. In one session. That compares with the 3-4% declines this week, and an 11% drop in 1929.

Naturally I assumed life was ending. A new depression was coming. This was unparalleled. It was different this time.

The next day hundreds of thousands of readers were treated to pictures of bread lines, hollow-eyed vagrant children on flatbed trucks and an army of unemployed men. My words matched. They were alarmist, shallow, unhelpful and reeked of inexperience and lack of judgment.

I regret it still.

Needless to say, central banks moved in, flooded the economy with liquidity and markets rebounded. A few days later stocks jumped by more than 10% in a day – the 7th-best gain on record. Within a couple of months, investors had shrugged it all off.

So, when the dot-com bubble burst and tech stocks lost 80% of their value in 1999, I remembered that. It was on my mind during the Y2K panic. Also in the terrible days and market collapse surrounding Nine Eleven. Same with the 2008-9 housing-induced meltdown and financial plunge. Plus the US debt ceiling crisis in 2011. And now.

Through every one of these never-happened-before moments many folks got scared, sold things shedding value, retreated to cash and did so on the advice of panicked, inexperienced, unwise and incorrect voices. They missed the good days that followed, crystallizing losses and robbed themselves of wealth. Today it’s far worse. Social media has removed the professional, sober-second-thought media filter, allowing a torrent of conjecture, fear-mongering and falsehoods to wash over us all.

In every instance of market mayhem in my life, certain things have been true. People who act out of emotion get whacked. Those who ignore the end-of-days gloom around them come out okay. Those who dive in when other flee make out like bandits.

Each time the system has self-corrected. Central banks get activist and adjust rates. Governments unleash capital. Stimulus packages and incentives emerge. Nobody wants a 1930s rerun, and with every crisis, scare, panic and pandemic, new ways are found to prevent one.

I’ve also learned markets are far more extreme than the rest of society. They swing from irrational exuberance to group suicide. The highs are too high. The lows too low. The pendulum always swings back. As one Wall Street smartie said on Friday: “With markets on the brink of correction territory, panic-selling, mis-pricing of high quality equities, and lower entry points, this could turn out to be one of the key buying opportunities in the last 10 years.”

As stated here yesterday, the bottom is unknown but we might be only half way there. A top-to-trough rout of 20% seems quite possible, and history shows us a wave of buying will follow. The world is still growing. US unemployment’s the lowest in 50 years. Great companies abound. Technology is improving life. Central banks will act. The immense disruption caused by this virus so far – and to come – is not erasing demand or corporate revenue, but pushing it into the future.

These things I did not understand clearly three decades ago. Now, yes.

Let’s end with Josh. He’s got a burning question for you:

I’ve been practicing what you preach for a few years now and have passing on the good work of BDL (balance, diversity and liquidity). I found my person and we’re getting married on July 1, 2020. My parents just gave us $10 000 for the wedding. Should I buy up the S&P 500 once it drops 20%. or just leave it in cash until the wedding? Thanks for everything you do.

Did I just hear a bell?

Garth Turner February 28th, 2020

Posted In: The Greater Fool

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