2-minute read
Football is back baby!
Isn’t it glorious?! A 5-month period of managing imaginary football teams, spousal accusations of parental neglect, and suspicious glares at Tom Brady’s jawline. What else could you ask for?
A Browns Super Bowl victory.
C’mon now. We’ve come a long way since the tragic 0-16 season of 2017.
Do you realize we won 4 games from 2015-2017? That’s 4 wins in 840 days!
That’s a nasty bear market.
Very reminiscent of the early-2000s stock market in fact.
I’m not familiar.
The Dot-Com Bubble ring any bells?
Ah yes, I’ve heard of it. Can’t say I know much about it.
In the mid-to-late ‘90s unprofitable tech stocks like Pets.com and Boo.com reached absurdly high valuations based on the promise of the internet and available venture capital money. Their stock prices ran higher and higher until many of them went bankrupt in early-2000. It concluded in plummeting stock prices as the “bubble burst”.
How bad was it?
Here’s how the 2000s started:
Year | S&P 500 Total Return |
2000 | -9.10% |
2001 | -11.89% |
2002 | -22.10% |
Oh my! I feel like this isn’t talked about that much.
I’ve often wondered why it doesn’t get more attention as well.
Maybe it’s because the 2008 crisis was even worse?
Are we sure about that?
You tell me.
If you invested $1 million in the S&P 500… | ||
Start Date | End Date | Final Balance[1] |
1/1/2000 | 12/31/2002 | $656,574 |
1/1/2008 | 12/31/2008 | $650,840 |
So it’s pretty much a wash.
In the end, yes.
Perhaps bonds fared worse during the ’08 GFC?
Fair point. Here’s what a 60% stock/40% bond portfolio did during those same periods:[2]
If you invested $1 million in a 60/40 portfolio… | ||
Start Date | End Date | Final Balance[3] |
1/1/2000 | 12/31/2002 | $887,206 |
1/1/2008 | 12/31/2008 | $826,140 |
So it’s a 6% difference which isn’t drastic in the end.
It comes down to your flavor of bear market. 2008 was the market falling off the 10th floor balcony. Check out this 3-month stretch from September-November:
Month | S&P 500 Total Return |
September | -9% |
October | -17% |
November | -7% |
Brutal.
Meanwhile, the 2000-2002 stretch was more like tripping down a flight of stairs, getting your bearings straight, then tripping down another flight.
Which flavor is more suitable to your palette?
Man, I don’t know. My gut is saying I’d rather choke down a 2008.
Really???
One of my biggest fears as a financial advisor is selling hope in the face of sustained losses. I’m a glass half-full guy, but we can all doubt ourselves when there’s a 3-year leak in the glass.
That’s fair.
I think this is why modeling out these situations with your portfolio is useful. Will it act as a sedative during the next bear market? Most likely not. But at least you have something to refer back to.
I’ll have to keep that in mind. Anyway, I gotta hop. Go Brownies!
Go Brownies!
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[1] Dividends are reinvested during this period (i.e. total return).
[2] Stocks: S&P 500 // Bonds: 10-year treasury index
[3] Dividends are reinvested during this period (i.e. total return).