October 27, 2023 – – If history is a predictor of the future, I have a lot to share. Starting as a clerk on the floor of the New York Stock Exchange (NYSE) in 1959, I have witnessed numerous market cycles up close. The bull and bear markets of the 1960s. The devastating 1972-74 bear market. The 1987 crash that took 22% off stock prices in a single day! The technology meltdown of 2000-02 and the Great Financial Crisis of 2008-09. While each market cycle may feel unique, they often shared similar paths and outcomes. As the current market cycle courses through our economy, this is a good time to share some pieces of wisdom acquired over the years that may help guide you and your family through these turbulent times.
Stocks will outperform bonds over the long-term.
Looking back more than 90 years, the stock market has endured wars, innumerable financial crises, and inflationary environments, among other events. Yet almost 80% of those years ended with a positive return in the stock market. And in those critical periods, stocks performed better than short-term bonds 70% of the time. If you look at any 10-year period, stocks beat short-term bonds 85% of the time. More importantly, over any 20-year period, stocks outperformed bonds 100% of the time. If you have long-term financial goals and have patience, stocks will reward you.
The stock market is a leading indicator.
Today, investors and economists predict we may face another recession in 2023. If so, the stock market’s 2022 decline already provided a clue. The stock market is forward-looking, and prices already reflect expectations of a 2023 recession. Similarly, the stock market will often rally well before a recession ends and when the headlines remain negative. Within one year after a recession, the market has averaged a 16% return – and this is often before the recession has officially been declared. Timing the market is tough during volatile economic periods. If you wait until there is an ‘all-clear’ signal, you will most certainly be left behind.
Bull markets follow bear markets.
We have experienced many wonderful bull markets and our fair share of bear markets over the past 70 years. While we often focus on those times when a bull market ends, it would be good to remember that bear markets will end too. This time is no different. History shows that when bear markets end, stocks rebounded almost 13% within the first month and 43% within the first year. We may not know exactly when the bear market will end, but we do know that patient investors who stick it out will be rewarded. Don’t make a drastic change to your long-term gameplan based on short-term events, or you may miss the opportunity.
Popular does not always mean profitable.
Back in the late 1960s, the trend was to own the fastest-growing stocks called the “Nifty Fifty.” Within just a few years, however, their share prices had collapsed an average of 90%. We saw a similar trend during the tech-bubble in early 2000, when the best stocks to own (supposedly) had little to no profit, but limitless growth potential. Unfortunately, many of us know too well how that ended. Now we are recovering from investors bidding up meme stocks, cryptocurrencies, and stay-at-home ecommerce stocks. Once again, investors are learning the hard way that hopes and dreams are not reason enough to ignore shaky balance sheets and unprofitable businesses. Owning high-quality growth and dividend companies with stable cash flows, strong balance sheets, and net profitability will lead to a profitable investment portfolio for you. You do get what you pay for.
History will repeat again, and the markets will rally as they have in the past; however, time frames are being compressed so it might happen even quicker. But it will happen. Those who have stayed the course with great American companies and did not try to time the market have prospered. Those who tried to time the cycles almost always failed to reinvest in time. That is the secret to achieving your unique individual long-term financial goals. We can help.
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The Sanibel Captiva Trust Company is an independent trust company with $3.5 billion in assets under management that provides Family Office and Wealth Management Services, including investment management, trust administration and financial counsel to high-net-worth individuals, families, businesses, foundations and endowments. Founded in 2001 as a state-chartered independent trust company, the firm is focused on wealth management services that are absolute-return oriented and performance driven. Each portfolio is separately managed and customized specifically to the client’s yield and cash-flow requirements. The Naples Trust Company and The Tampa Bay Trust Company are divisions of The Sanibel Captiva Trust Company. Offices in Sanibel-Captiva, Fort Myers, Naples, Marco Island, Tampa, Belleair Bluffs and Tarpon Springs. www.sancaptrustco.com