By Morgan Christen
CFA, CFP, CDFA, CEO and CIO
Betty White died just short of her 100th birthday. She is quoted as saying that her longevity was due to laughing, her love of vodka and hot dogs, and staying positive.
She told Parade Magazine “accentuate the positive, not the negative.”
Betty also saw many years of the stock market; below is the Dow Jones Industrial Average (DJIA) from her birth to death. She was a young girl when the depression hit, but a grown woman during the 1970’s.
During both of those time periods she could have easily accentuated the negative in the market.
Without adjusting for dividends and inflation, the DJIA grew at an average rate of roughly 7.75% during her life.
Assuming Betty’s parents invested $100 when she was born and she averaged a 7.75% rate of return, she would have $174,472 one-hundred years later… the beauty and power of compound interest. Oh, and that is with some brutal down-drafts.
Volatility, as tracked by the VIX, does not go back nearly as long as the DJIA, but the chart shows it has been around for a while.
Down markets happen from time-to-time, and you can’t expect positive returns in the long run without the occasional loss. In fact, in January the S&P 500 and the Nasdaq dipped into the “correction zone,” a 10% drop.
As you will see in the chart that has happened 63% of the time since 1928.
2020 was a year that looked like a large crash, dropping 34%, only to finish the year up double digits.
The ultimate market irony: All past declines look like opportunities while all future declines look like risks (source unknown).
There is new group of stock buyers that have entered over the last couple of years, and they are not accustomed to volatility or drops.
Many have a binary thought process, stocks will go to the moon or come crashing down.
Times like these flush out those that are not in for the long run; Mr. Market is saying hello to investors and Buh bye to speculators.
It has been a year since the meme stocks took off. Game Stop had been trading in the $5 to low-teen range for some time, when suddenly it spiked to $325 in the beginning of January 2021. The stock is still higher than it was pre-mania but is now in the $100 range.
Crypto is off, The Washington Post reported $1 Trillion in wealth has been erased so far. Posts on the sub-Reddit Wall Street Bets are off significantly. The cheerleaders are going home. The home team won; most visitors lost.
I read somewhere that Betty also relied on and utilized advisors. From agents to accountants to financial advisors. She lived a long life and realized the need for help.
This increased volatility hurts and can take a toll on your thinking. Doing it alone can increase the potential for making an error. However, working with someone helps you look at volatility as your friend, a time to look at opportunities and a time to rebalance.
For most investors and especially those who are adding regularly, corrections are a good thing. Things are on sale. Why do we rush to Nordstrom for the half yearly sale, but run from stocks?
For those of us planning to follow in the footsteps of Betty White, we have many years to go before 100. Your lifetime return will be determined by your behavior when markets misbehave. As Dorothy Neddermeyer once said, “life is ten percent what you experience and ninety percent how you respond to it.”
If you have any questions or would like to respond to this market note, please reply. We enjoy receiving your feedback. As always, your Spinnaker Team is here to assist you.
The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice.