One of the worst downturns the US has experienced in recent history was the Great Recession from December 2007 to June 2009. The economic crisis was caused by the collapse of the housing market, which was fueled by low interest rates, cheap lending, poor regulation, and hazardous subprime mortgages. The S&P 500 briefly fell to the apocalyptic value of 666 on March 6, 2009, and reached its closing low of 676 three days later. It was a mess. I remember watching stocks in freefall. Company share prices were getting cheaper daily and investors were starting to panic. The market took big casualties during the period, including investment banks like Lehman Brothers and Bear Stearns. I remember thinking it was bad, but also thought this couldn’t last forever, and I got to work preparing my watch list of stocks I wanted to buy. It was probably the first time I had really methodically gone through companies very carefully knowing that an opportunity was coming, and I wasn’t going to miss it. This is an exercise I continue to practice today.
Market peaks and troughs come in many different disguises. A look at history will tell you this. I get a little tired of commentators comparing what happened “before” to what is happening now. Nothing is ever the same in history and the world changes daily. New investors come along with different habits and market cycles are forever morphing into different forms. What never seems to change are investors’ emotions. This is the one thing you can rely on to drive markets (usually incorrectly) most of the time, something which few commentators ever recognize or speak about. They are usually caught up in it themselves. They are purveyors of bad news. Investors chase quick money as prices rise and flee in fear when they decline on future news flow. Nothing can be further to what you need to be successful. Remember, risk decreases as the market falls as companies become cheaper, it doesn’t increase. It just may seem like the opposite.