Those That Fail to Learn from History

Those That Fail to Learn from History

For whatever reason, I have found myself reading about history quite a bit these days.  Really odd for me, as I’ve A. never been a big reader, and B. history yuck!  That said, I have really enjoyed the handful of books on historical figures or time periods I’ve been consuming.  Today I’d like to focus on a saying by one of the greatest leaders of any generation, Winston Churchill.  He once infamously said, “Those that fail to learn from history are doomed to repeat it.” 

I’ve always loved this saying as it has so many real-world practicalities.  For today’s blurb, I found a fantastic chart that all I could think of was this infamous quote (credit where credit is due Max Berger my wonderful colleague sent me the chart).  Let’s take a look at the chart and then I’ll comment on it, and what history lessons we can all glean from it.  The chart below comes from Capital Group, and I find it succinct and very telling.   

Have you had a chance to absorb the information above?  They do a great job of summarizing a complex set of data.  In short, since 1949 average bull markets are 67 months returning a whopping 265% return, while average bear markets last 12 months with a negative return of -33%.  Take a second to let that sink in. 

Let’s Discuss

Ready?  Let’s discuss this, shall we?  Now, hear me out for a few moments.  For starters, let us assume no one can successfully “time” the markets.  If we go off that assumption, it is staggering what clarity a simple chart like this can provide us. 

1. It is clear how impossible it is to time a market.  For anyone to look at the end of the blue bull market chart and state that NOW seems like an appropriate time to sell is ludicrous.
2. The upside is much more promising than the downside.  If you have any belief in the markets and general economy you know that the market can’t go to zero, otherwise it would deem the entire corporate world valueless.  I am not even sure of a plausible scenario where that is even possible, to be honest.  That said a terrible decline would be a loss of value of let’s say 50%, as 100% let’s assume is not possible.  However, as you can see a positive return is theoretically limitless, and even on average is over 2.5 times 100%, which we just agreed is not feasible on the downside.
3. Downturns are inevitable and part of the market cycle.  I try to hammer this home with all my clients, yet it is still a hard thing for many to stomach.  I clearly understand how trying it is to see your net worth get cut by a third in a single year.  It takes real resolve to, in some cases, blindly trust the markets.  However, as the saying goes, “Fortune favors the bold.” 
4. The key to investing is investing.  This profound saying was coined 10 seconds ago by yours truly.  The chart, and this brilliant saying, speaks to the point that investing and staying invested is the magic elixir that can yield unimaginable wealth and growth on your assets.  I have yet to see a better and more consistently reliable way to grow your net worth than by investing in the stock market. 
5. Timing is everything, but don’t let it cloud your perspective or judgment.  I’ve had the pleasure and honor of helping thousands of families throughout my career.  It is crazy how much timing can cloud one’s judgment.  For example, let’s pretend I had clients who came on board in January and in October last year.  Despite having these clients in the exact same investment models, and working with the exact same advisor, yours truly, their investment returns may be completely opposite.  The January new clients would have likely experienced a terrible market year – likely down close to 20% in a year, imagine that as your initial experience working with someone.  Now take the hypothetical October client who may be up over 20% in a much shorter time period, and I look like a genius.  Sadly, I am no genius (unless you ask my mom) and conversely, I am no moron. As always, a reminder that past performance doesn’t guarantee future results.
6. When you have a bad year or two in the markets come back to this blog.  I think this is a great blog to reference on many basic investment principles, much of which I’ve listed above.  That said, the markets will go down again.  I have no clue when, but trust me they will.  I hope when that time comes, you open this blog and look at this graph.  When you do remember downturns are normal, and generally a fraction as bad or as long as the upturns have and will be.

One more quote

Since we are on the topic of quotes from the great Winston Churchill, I’ll leave you with one more relevant one from him.  Oh by the way, if anyone does have a fantastic, easy-to-read book on Winston please share.  Anyway, the saying is this, “Attitude is a little thing that makes a big difference.”  Next time you are faced with a down market and see your investments worth appreciably less than they were, remember that the right attitude will make a huge difference.

As always stay wealthy, healthy, and happy!