History Is An Investors Greatest Teacher

The market volatility of this week has continued to keep investors on the edge of their seats. This roller coaster ride leaves many repeating the same word heard in most news reports on the subject:  Unprecedented. 

Although this is the type of word that perpetuates the fear that has gripped the current market, to me it seemed more than fitting.  That is until I took a look back in history and chatted with a few of my “investor” friends that have been around a lot longer than I have.

Is It The 1980’s Again?

The period I often hear cited is the early eighties. At the time, the prime lending rate was 20%. Around June of ’82 markets had the worst one-year return on record at about -40%. Even the music was rough: Dire Straits was singing ‘Industrial Disease’ and lyrics to Bruce Springsteen’s hit said “…these jobs are going and they ain’t coming back”.  It was a daily occurrence for investors to drop off the keys to the house they could no longer afford. Sound familiar (minus the lending rates)?  

We are all familiar with that bear market ‘dip’ of the early eighties from referring back to the Andex Chart of market returns. But what’s missing from the Andex chart is what was so poignantly described as “…the sheer and utter fear we all felt at the time”… similar to how many investors have been feeling lately. 

We must remind ourselves that time dulls the fear just as it smooths out the peaks and valleys of market returns on that well-known chart. For as bad as that time was, the investors who lived through it have commented, “I would give anything to go back and buy up some of those stocks people were running from, or a few of those houses that no one could give away at the time”.

Put Stocks In Perspective

The key message here is to help reinforce the importance of perspective. Since the early 1900s we have had many market crises and experienced the fear that accompanies them. And although the current culture of 24/7 news access may amplify those fears, we cannot say with certainty if the bottom is near or when the markets will turn the corner. We can only say that markets have proven their resilience through similar markets of the past and gone on to new heights.

That said, why should this time be any different than the “end of the world” scenarios of past market corrections?


  1. “We must remind ourselves that time dulls the fear just as it smoothes out the peaks and valleys of market returns on that well-known chart”

    Great line and well put post.

  2. Money,
    Yes, after speaking with my older investor friends it is repetative – what they all say to me is “It’s the same as a hangover, you know the party is going to end and it’s going to hurt for a while but the pain won’t last forever”

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