In the investing world, the worst of times can be the best of times to buy. The markets provided that lesson once again to investors over the last five years. A half-decade ago, with panic at generational highs and expectations near all-time lows, the market bottomed on March 9, 2009. As a result, the five-year results you see ending February 28, 2014 are likely the best month-end returns you will see for a long time. Before we get to those numbers, however, we would like to look back at our view exactly five years ago in the February 2009 commentary.
Recall that neither we nor anyone could "call the bottom" back then. Indeed, looking straight into the rearview mirror, the financial press was doing close to the opposite, "reporting extensively about the so-called 'lost decade.'" The prevailing notion was that the negative 10-year return for the stock market shattered the status of stocks as a good long-term investment. We noted, however, that "[s]ince the beginning of 1929, the stock market has had negative 10-year returns at month-end only 9% of the time, and only 5% of the time after the Great Depression's damage." Moreover, these "lost" decades tended to be closer to market bottoms than signposts on the way to further losses: We noted that buying "at the end of a difficult 10-year stretch, even if the economy is in poor shape, tends to yield good results rather than bad ones." We used the strong decade-long periods immediately succeeding the negative 10-year returns from December 1974 and August 1982 to make the point. We ended with our core conclusion: "History tells us, however, this is the time to shove fear in the closet, think rationally, and ponder the next 10 years rather than the ten that just ended." Continue Reading »