The Sky Is Falling! – Special “FOQ” Edition

John Noonan Uncategorized

You Asked, So We’ll Answer


FOQ: (During a meeting…) Everything’s down – did you just say that’s good?

Short: Yup.

Long: Well, without down markets, we would not have much of an up market over the long run. Stocks have averaged about 10% forever. And that’s more than cash, bonds, commodities, CDs, gold and other metals, annuities, currencies, collectibles, and just about anything else. But for that long-term reward, we must absolutely experience some short-term suffering – that is, the manifestation of risk. Reward and risk are inextricably related. Anything said to the contrary is either a sales pitch or a lie. And all the evidence tells us that attempting to maneuver around times like this (i.e., market timing) will likely result in even lower returns.


FOQ: So how long will the market fall for?

Short: Beats me.

Long: In your lifetime, the worst market you’ve experienced was the ’08 financial crisis. Stocks peaked just prior, in the fall of ’07, and they bottomed out in the spring of ’09. Altogether, the market fell over 50% from top to bottom over a long year and a half. Yeah, that wasn’t fun.

Covid was the shortest worst market, dropping 35% in one month before bottoming out. In between, we had scary drops in ’11 for five months, ’15 for nine months and ’18 for eleven months. If you hardly remember those, join the club. Bonus points: name what terrible thing caused those other three drops…and if those terrible things ended up mattering to the market. Here’s a hint for part two: for the entire history of the market (up until the recent November peak), after every single drop of any magnitude ever, the market hit a new high.

When will it come back from the current struggles? There’s no right answer to that question no matter when you ask it. The timing of the market has been and always will be completely unpredictable. But while we don’t know the direction or timing of the next 20% move, we absolutely know that the next 100% move will be up.


FOQ:  Should I even care?

Short: Nope.

Long: Any part of your portfolio that’s pegged for short-term spending isn’t feeling the pain now. It’s not in the market much if at all. It’s the longer-term portion that’s taking the hit. And that’s OK (see question #1). You have history on your side. Check out this graph…


Great Oak Capital Partners - 2022.5 2

A quick explanation: You’re looking at the best and worst returns of stocks (blue), bonds (green) and a mix of 60% stocks to 40% bonds (orange), over four different time frames. One-year returns are straightforward. For the 5-year returns, “rolling” means from 1973 to 1977, from 1974 to 1978, from 1975 to 1979, and so on. Same for ten and twenty years. The returns are annualized. For example, the best 10-year return for bonds was 13.6% per year. The worst was 2.5% per year.

Focus on the stock returns in blue. In any year, anything can and has happened. Making 49.3% in a year is great, but losing 41.7% is not. That’s why investing is for the long term. Look how much the range of outcomes shrinks when we go out to 5-year returns. There, the worst case has been a negative 1% per year loss. Not terrible, but it’s why with 5-year time horizons, you’ll typically have bonds in the portfolio, bumping the worst case up to a positive 3.4%.

At 10-year returns, we now see why the manifestation of risk in the last six months is not worth your time and energy. Sure, it hurts to see the market down 4% in one day, or 20% since last November. Fortunately, throughout all the terrible market drops we’ve all faced, the worst 10-year period for stocks still produced a positive 5.5% per year return, even though that time began with the Tech Bubble bursting and ended with the Financial Crisis. Two events that walloped the market, yet investors – those in it for the long-term – came out on top.

Be an investor. If we’ve recommended that you have money in stocks, then you have the time to let this play out and recover. Think long-term. We know – easier said than done. And that’s why we’re here for you. Want to talk more about it? Call us. Or better yet, come in to see us. Or we’ll come see you. Let us remind you why you’re invested the way you are, and how seven decades of science, academia and mathematics underpin your strategy. Your investments will be just fine. Let’s make sure you are too.


John, Bill, Mark & Melanie