The Lazarus Effect

Omigod! The stock market tanked a few weeks ago! It descended into proper “bear” territory, as in “Bear Market”.

Commentators panicked. This may be the beginning of the end, they suggested. This may bring markets down around the world. An army of big-time pontificators told us to be worried. Think about working ‘til you’re 90, they suggested.

And, like sheep, millions of Americans did fret. They gnawed on their pillows at night and screamed at their investment advisors by day. Many sold out. They grabbed their money and ran from the market as you would a falling building. They bought extra mattresses, under which they could stash the cash.

Nothing, it seemed, would calm them. Nothing, it seemed, would encourage them to step back and gain a bit of perspective.

Here is that bit of perspective they missed.

First, declines of 10 percent or greater in the stock market are rare. By June of this year the market had - omigod - dropped over 10 percent. The nasty rare event had occurred. Woe wuz us.



Let us look at other times when the market fell dramatically.

In October 1987 the market did not fall so much as crash. It crashed 23 percent. Woe wuz us in bold-faced capital letters fifty feet high. Festooned with a dozen exclamation marks. The pundits envisioned bread lines. They foresaw execs hawking apples on Madison Ave, their elbows peeping through their pinstriped jackets.

Well, a year later the S&P 500 was up about 15 percent. Six months later it had climbed 60 percent. How about them apples?

Three years later the market fell over 10 percent again. In August. Horrible! Terrible! What’s an investor to do, before committing hari kari? The end is nigh - whatever that word means. The market’s got a terminal disease.

Well, a year later the miserable market was sitting up in bed. And taking nourishment in the form of bubbly. It was up 27 per cent. Six months later it was up 35 percent.

In August 1998 the wretched market plunged 15 percent. “This time we have really, well and truly copped it.” So cried the gurus of mainstream media. They dug up a few billionaires to pronounce last rites on stocks. They dug the grave, clothed their commentary in black garb. Headstone: Stock market hopes and dreams died in August 1998.

Before they got their mourning gear back from the dry cleaner the market was up 40 percent. In 12 months. After another year, that Lazarus market had risen 63 percent.

The dotcom bust of 2001 dragged the market down from 8 to 11 percent. (Depending upon which index you favor.) It did not bounce back the next year. It got worse. So in that respect it was different. As for the pundits, no difference. Except that they got to cast gloom over us for an extra 12 months.

Ah, but after two years the Dow-Jones was up over 9 percent.

In September of 2002 the market was down over 12 percent. Woe wuz us, etc. Twelve months later it was up 25 percent. Another six months and it was up about 42 percent.

Of course there are lessons here. One is that when the market goes down you should take a vacation. Tour the bedroom. Take in the cellar. Cruise the back yard. Flee to anywhere the babbling idiots of television are out of range. Get thee away from their murky reports and “The dam broke!” alerts. Rip out the damned cable. Topple your satellite dish.

Another lesson is to think about, maybe, possibly investing during the worst of the gloom. Invest when the tv anchors sport black arm bands. The country is not going down the tubes. It is the tube that goes down the tube. The birds that caw on it have predicted 1000 of the last two calamities. And they turned out to be pretty short.

From Tom ... as in Morgan.

For more columns and for Tom’s radio shows (and to write to Tom): tomasinmorgan.com.

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