The big sell-off in stocks had investors on the edge of their chairs. We heard them talking about it in the business class lounge on the way to India.
‘Hey…this is getting serious,‘ said one man sitting at the bar, his head cocked up towards the TV screen.
‘Yes,‘ said another. ‘Looks like we might get another buying opportunity.‘
We will come back to this in a minute.
First, a correction. Quick-witted dear readers wrote to contradict us. Colleague Porter Stansberry offered an emendation. No way did gold outperform the S&P 500 between 1971 and 2014. From Porter:
The numbers, including dividends, are below.
From August 15, 1971
S&P: 6,460%; 10.4% a year
Gold: 2,813%; 8.3% a year
As you can see, it depends on whether you include dividends…and which index you use.
And if you include dividends, what tax rate do you apply?
We simply ducked those issues to make our point: If we’d gone to sleep 40 years ago, owning enough gold coins to buy the Dow at that time (assuming it were not illegal, of course), today, we could buy the Dow and half again as much.
But most people drew Porter’s lesson, not ours: Over the last four decades, owning stocks paid off. And one approach to stock market investing paid off especially well: Buy the dips.
Now, like dental fillings, ‘buy the dips’ is cemented in place. If you want to improve your smile, dear reader, take advantage of sell-offs to buy more stocks.
From a low below 1,000 in August 1982, the Dow has gone up and up and up. And every time stocks hit a slippery patch and went into a ditch, the Fed was there with a tow truck in minutes.
The Crash of 1987 was Alan Greenspan’s first on-the-job emergency call. He was there in minutes, pledging the nation’s treasure to stockholders.
The Fed ‘will serve as a source of liquidity to support the economic and financial system,‘ he said, as he attached the winch.
Greenspan got another opportunity to bring up the tow truck after the Dot-Com Crash in 2000.
Then it was Ben Bernanke’s turn behind the wheel. He got the call in September 2008. Apparently, it was news to him that there was ice on the road. He must have been listening to the baseball game. But when he learned of the massive pileup, he called out a fleet to get the hapless vehicles back on the road.
Here we are, five years later, and he’s still got much of the economy on tow chains. But the S&P 500 has risen 160% since its closing low of 676.53 on March 9, 2009.
What are investors supposed to make of this history? Need they fear the weather?
Every ice slick is a stepping stone to success, they believe. The Fed will always be there…always ready with the right tool for the job…and always making sure travellers get where they want to go.
There will be no more crashes…no more bear markets…and no more stock market catastrophes.
Instead, we will only have buying opportunities.
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