Uneasy Lies the Head That Wears a Crown By: Gabriel PotterMBA, AIFA® 2020.03.04

Last week set a few records in the market.  First, we had the largest single day point change in the markets ever.  Specifically, the Dow Jones dropped 1190 (about 4.4%) in a single day.  There have been larger drops on a percentage basis – even younger investors may remember some of the -7% days which occurred during the 2008 pullback – but a 4.4% drop in a single day still rates as one of the worst.

Another record:  last week also marked the quickest turnarounds we’ve ever had.  Consider, on February 12, the Dow Jones set an all-time high record at 29,551.  The Dow was still coasting on high numbers, ending the week on February 21st nearly at 29,000.  However, within a single week it all turned.  By market close on February 28th, the Dow Jones is 25,409.  That’s a 14% drop from the high. 

We’ll have more to say on the COVID-19 corona virus, its direct impact on collective attitudes and the consequential impact that creates on real-world earnings in our next monthly article. In the meantime, however, it’s worth reflecting where the market is now in larger context.  Certainly, a one-week 14% drop is alarming, but don’t forget the markets are still materially higher than where we started last year (around 23,000). 

More pointedly, investing is a long-term prospect.  Over the past 10 years, long-term investors have borne heavy shocks to their fortunes along the way including the Eurozone debt crisis, multiple US government shutdowns, Britain’s exit from the Eurozone, earthquakes, tsunamis, and the trailing aftershocks of the H1N1 swine flu pandemic.  However, if you have been a patient and diligent long-term investor, with more than 10 years in the market, you’ve seen your money more than double.  In price terms alone, the Dow Jones was around 10,500 10 years ago, and that doesn’t account for the dividends and compounded interest you’ve picked up along the way. 

 

 

 

 

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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