Note from our CIO: 25th Anniversary

The end never came. As I write today, the S&P 500 last closed above 1,428, over six times higher in price from that dreadful market bottom 25 years ago. And this is despite the fact that the last quarter of a century included, as you might vividly remember, the two worst market crashes our country has endured since the Great Depression: the dot.com crash of 2000 and the financial recession of 2008.

That day in October 1987, Warren Buffett’s share holdings in Berkshire Hathaway declined $350 million, about 25%, in value. So here is a trick question: how much money do you think he lost that day?

The correct answer is: Mr. Buffett did not lose any money that day, because he did not sell. Mr. Buffett did nothing that day: he did not panic; he did not react; he did not let his emotions override the lessons of history.

The lesson here is two-fold. Firstly, do not mistake volatility – the temporary decline of markets – for loss. Volatility is the necessary price all long-term investors must pay in order to receive market gains…it’s a combo package, you can’t have one without the other. Secondly, the four most dangerous words in investing are “this time is different,” not because this time is not different…every time is different, in details, and seemingly worse than the last time, at least for the economy, but not for the markets. What matters in markets is the resilience of people and companies. Who could have predicted on October 19, 1987 the fall of Soviet Communism, the internet and the iPhone? Who could have predicted that genetic biology would unravel the code of DNA, extending life expectancies worldwide, and that robots would perform less invasive surgeries?

With so many news flashes of tragedies around the world, it is easy to lose our historical perspective. Here is how I keep my perspective. On Friday, January 16, 1970, the day I entered the world, the S&P 500 closed at about 90. Today, as noted already, it is about 1,482. What was the S&P 500 the day you were born? I encourage you to ask your Abacus advisor to look this up for you, to serve as your personal anchor for perspective.