At the 21st Annual Investment U Conference at the beautiful Vinoy Renaissance in St. Petersburg, Florida, last week, I talked about the power of optimism to create investment success.
Every investment portfolio at its foundation is based not just on recommendations or strategies but on a particular sensibility, a way of seeing the world.
The greatest investors – men like Warren Buffett, Peter Lynch and John Templeton – didn’t just have a positive outlook…
They maintained an optimism about the future that simply didn’t have an off switch.
Of course, it’s easy to be optimistic when the economy is strong, corporate profits are up and we’re in the midst of a strong bull market.
The challenges arise when the opposite is the case.
As a refresher, let’s do a quick review of a few hurdles from the last decade or so:
1) In 2008, the housing bubble popped, leading to the collapse of Bear Stearns and Lehman Brothers. It was the beginning of the Great Recession.
2) In 2009, the stock market had lost more than half its value, unemployment peaked at 10% and household net worth took a 45% haircut.
3) In response to the loss of business and consumer confidence, the Federal Reserve took interest rates to zero and embarked on ambitious large-scale asset purchases known as quantitative easing, eventually inflating its balance sheet by more than $4 trillion.
4) In 2010, the Flash Crash took the value of the S&P 500 down 9.6% in less than an hour, as trading algorithms rocked the market, even disconnecting some exchange-traded funds from the value of their holdings.
5) Many homeowners – especially those who hadn’t made down payments on their purchases – mailed their keys to their banks. There were 157 bank failures that year.
6) In 2011, a sovereign bank crisis roiled Europe. And, for the first time in history, U.S. Treasury debt was downgraded.
7) Also in 2011 – with home prices still in the dumpster and the S&P 500 falling more than 19% between April and October – gold peaked at $1,895 an ounce, portending further trouble.
8) In 2013, investors threw a “taper tantrum,” trashing both stock and bond prices after the Fed announced it would cut back its massive bond-buying program.
9) In 2014, the Islamic State (ISIS) gained global prominence after driving Iraqi government forces out of key cities and capturing a large swath of eastern Syria. At its peak, the world’s largest and most powerful terrorist group ruled millions of people, controlled billions of dollars and maintained a force of more than 30,000 fighters.
10) Also in 2014, oil and gas prices collapsed as formerly inaccessible deposits became commercially viable due to technological advances like hydraulic fracturing and horizontal drilling.
11) That didn’t just create havoc in the oil patch. It caused an “earnings recession” in 2015, four consecutive quarters of lower year-over-year corporate profits for the S&P 500.
12) Also in 2015, the Fed started raising interest rates, convincing millions that the bull market that started six years ago was over.
13) In 2016, Britain – defying the pollsters – voted to leave the European Union. Stocks sold off on the news.
14) As if pollsters didn’t already have enough egg on their faces from Brexit, in 2016 a celebrity real estate magnate – given no realistic chance of winning – captured the White House. Stock futures initially plunged on the news.
15) In the fourth quarter of last year, investors became convinced that we were headed for a recession – if not something worse. The Nasdaq, Russell 2000 and Wilshire 5000 all entered bear market territory. (The S&P 500, for its part, managed to hold a peak-to-trough decline in closing value to 19.8%.)
Through all of this, it took more than just intestinal fortitude to stay invested in stocks.
It took an abiding faith in the ability of entrepreneurs, investors, businesspeople and, yes, policy makers to tackle the problems of the present to create a more prosperous tomorrow.
Optimists did not sell in a panic, run to cash… or hoard gold and silver.
Rather, they patiently and selectively took advantage of some of the greatest buying opportunities of our lifetimes.
And today they are reaping the benefits.
This is not to suggest that the business cycle has been repealed or that the market will remain in an uptrend.
It hasn’t and it won’t.
But that’s just the point. There will be more bad economies, awful uncertainties and down markets in the future.
The question is whether you will maintain an optimistic sensibility and take advantage of the opportunities that unfold…
Or fall prey to the prophets of doom?