It’s days like yesterday, March 10th, that made Warren Buffett a billionaire. For those of you who have not been paying attention, the stock market yesterday did not have a great day. The S&P 500® was down nearly 3% and the NASDAQ was down 4%. For the year, the NASDAQ is down almost 10%. With all the talks of tariffs, inflation, and recessions, it’s times like now that many investors begin to get that panic feeling in their gut. So, what should we do?
Warren Buffett once said, “Be afraid when everyone else is greedy; be greedy when everyone else is afraid”. Times of market panics often are the best times to invest.
Here are four examples from recent history:
· Early 2009: Obama’s first term
· The first three months of Obama’s tenure was not great for the stock market. The waves of good feelings that people felt voting for the first black president in American history did not stop the stock market from continuing its plunge. By the time we reached March 9,2009, the S&P 500® was down 25% for the year. Certainly, during this time, there were people worrying about whether a relatively new politician could help stabilize a floundering economy and stock market. Yet, from that low point in 2009 and for the rest of the year, the stock market rallied nearly 65%.
· Early 2016: An unexpected election
· Election years are hardly periods in which the stock market is smooth. Choppiness and volatility seem to increase during this time in which we are deciding who will be the new leader of our country. 2016 was no exception. From January 1st until February 8th, the S&P 500® fell nearly 9%. With concerns of who might end up becoming president, coupled with issues happening overseas, it appeared as though 2016 may not be a year in which investors would be making any money. However, from that low point in 2016 and for the rest of the year, the stock market rallied 20%.
· 2022: Inflation, Inflation, Inflation
· For over a decade, we did not have to concern ourselves with inflation. For millennials, like myself, inflation was something that we heard about taking place in the 1970’s but never actually experienced. That changed in 2022. During this year, we were reminded that inflation is still a force to reckon with. As inflation reared its ugly head, the stock market retreated. For the entire year, the S&P 500® decreased by over 19%. As we entered 2023, it did not feel as though things would get better. However, they did. In 2023, the S&P 500® increased by 24% and in 2024, it increased by another 24%.
· Early 2020: Covid panic
· 2020 was a year that I think many of us would like to forget about. It was a year in which all of us learned more about epidemiology, viruses, and masks than we ever wanted. When word of a mysterious, deadly, and highly contagious virus came to our attention, the stock market, like all of us, freaked out. From January 1st until March 16th, the S&P 500® plunged nearly 29%, all of those losses coming in a 37-day span between February 10th and March 16th. If there was ever a time in which it felt as though the mantra, “This time is different” was indeed correct, it was this. It truly did feel as though we were on the cusps of an economic meltdown that was unprecedented in history. Well, what happened afterwards? From that low point on March 16, the S&P 500® rallied 63% for the rest of the year.
Oftentimes our emotions get the best of us during periods of uncertainty. That natural “fight or flight” response kicks in, and we can do things that, with a calmer mind, we would avoid. Investing is one of those areas where our emotions can end up harming us more than helping us. Could this time be different and we are headed towards a global depression the likes of which the world has never seen? Yes, this time could in fact be different. However, the likelihood of that end-times scenario being the case is slim. The more realistic scenario is that we hit some temporary turbulence in the markets. Anyone that has ever been in a plane during turbulence knows that it is an unsettling feeling. However, it would be premature to assume the plane is crashing and to put on our life jackets. Likewise, it is premature to assume that the current market turbulence is indicative of a major global meltdown.
The best thing to do in times like this is also probably the most difficult thing to do: don’t panic sell and, if you are able to, invest. Could there be minor tweaks and adjustments made to a portfolio during this period to help minimize the downturn? Sure, but the “sell everything and move in cash” reaction that tends to happen during times like this hardly ever works out. I know it’s not great watching your hard-earned investments lose money. But, if we allow for history to be our teacher, then we know that this moment is just that…a moment. It will pass, and the markets will continue to do what they have historically always done, increase in value.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
Past performance is not an indication or guarantee of future results.
The S&P 500® is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad based index