Ep 19: Market Downturns And Recoveries

On This Episode

Today our discussion revolves around bull and bear markets. We will break down the basics of what each of these types of markets mean and take a look at some historic trends that are relevant to this topic.


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PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:


Marc: Hey, everybody. Welcome into this edition of retirement planning redefined. Mark here once again with the guys from PFG private wealth, John and Nick joining me as we talk about investing, finance, and retirement from the confines of our own happy homes as we’re still on lockdown doing this thing here. Everybody doing okay? Doing safe, John, how are you bud?


John: I’m doing good. I’m doing good. How are you?


Marc: Not too stir crazy?


John: No, no. I get out a lot, do a lot of walking, some biking, and I got some kids to entertain me, so that might make me a little stir crazy, but not sitting in the house.


Marc: Yes. I see a lot of people doing the homeschool thing and they’re like, “Mommy needs a teacher work day bad.” All the moms that are doing homeschooling and whatnot. Mine’s grown, so that would be frustrating and kudos to those folks that are doing that. Nick, what about you? But how are you?


Nick: Pretty good. The area that I live in downtown in St Pete, the waterfront’s pretty close by, so I have been at least every other day either taking a jog or taking a walk over there. The water tends to put your mind at ease with it.


Marc: Isn’t it interesting how like … I mean, could you find the time to do that before? It’s almost like we do get this interesting time to reset and appreciate some of the little things that we just seemed to gloss right over before.


Nick: Yes. Living in the area, I’ve tried to make sure that I take advantage of it, but even with that I still hadn’t always. It’s interesting, you do see from the standpoint of … St Pete, it’s pretty well known. There’s a lot of waterfront parks, so they’ve done a good job protecting the waterfront and there’s definitely a lot more people. You can tell because I would try to snack a run during the day and that sort of thing previous times, there’s definitely more people out than was typical. People are doing a pretty good job of distancing themselves, but there’s definitely flocking to that sort of environment.


Marc: Yes, you’ve got to be careful, if you get too many in there, they’ll wind up shutting it down. They’ll lock it.


Nick: Yes.


Marc: I know, I saw that with a lot of places like here where I’m at, we’d go out to the lake or whatnot and you were allowed to go use the … the parks are closed, but you could go to the state parks, but you could go to the lake. You go get on the lake, you get on the boat, and then people were hanging out putting their boats together, chit chatting, and drinking beer or whatever the case might be. It’s like, no. Sure enough, they closed the lake. You’ve got a whole lake stay, stay apart from one another a little bit. Just right around your boat, do some fishing, whatever.


Marc: Don’t make a party out of it, but they did, so they closed the lake. Well, it is what it is. It’s part of this paradigm we’re living in. Hopefully, we’re getting closer. Every week is bringing us obviously bad news, but there’s some positives, there’s some things that are starting. We’re starting to see numbers decrease in places here and there, so hopefully that will continue on. We’re going to continue on with our ongoing series that we’ve been doing the last couple of weeks about just in general things to think about during this downturn. Guys, we’re going to pick it up this week with market downturns and recoveries. John, why don’t you kick us off with our friend, the bear, since we were in the long bull forever in a day it seemed like? Now, we’re hearing about the bear so much. Just give us an overview here.


John: Yes, so just want to define kind of what is a bear market and basically a bear market is when there’s a 20 percent drop from the recent peak. Let’s just say like a 52 week high, so when it drops 20 percent from that standpoint, we’re now considered in a bear market. Just a little bit of history. Since 1926, there’s roughly been about 16 of them and they happen on average about every six years or so. Just some tidbits. When you’re dealing with this type of bear market, and we’re probably repeating ourselves from our last sessions, but you never want to be selling off of your portfolio, especially at the bottom. It’s really important during this time frame just to remain focused and just remember it’s a longterm strategy. Just stick to your overall plan.


Marc: Okay. Those are some things to kind of keep in mind with the bear marker.


Nick: I would say too real quick, just one last thing on the bear market because we have gotten a few questions on it. Some people had asked about once they finally checked in on their 401K and they’re making their regular contributions, should they stop making those contributions, and will that help them? I’m quoting a few people here, but, “What’s the point of putting in the money if I’m just going to lose value on it in a week? Those sorts of things. That just has to do with averaging into the market, again buying on a discount. Even though it’s going down, the next contribution that you make will be able to buy in at a lower price. When things bounce back, buying in at those lower values are what help people bounce back faster.


Marc: Yes. It’s all part of the strategy, right? With every situation, you want to make sure that before you take any action of any kind that you’re checking with your advisor and how your plan is situated and set up or if you don’t have one, get one because that’s going to help you answer some of those questions as to how you may or may not want to look at different vehicles, different investment ideas, strategies, so on and so forth during anytime, but obviously during a downtime as well. Since we covered the bears, let’s talk about the bull. Actually, I think at the time we’re taping this, I saw that Germany posted and said one of their indexes pulled out of the bear. That might be encouraging news, but what’s a bull market, Nick?


Nick: Really, the bull is just kind of the opposite where we’re talking about a 20 percent increase in stock prices. Historically, there’s been around 14, about 14 bull markets. Really, these going to last for quite a bit of time. I mean, the reality is that post great recession of ’08, ’09, for all intents and purposes, we’ve been in a bull market situation for … a previous too, this coronavirus induced issue over a decade. The tricky thing with bull markets when they, especially one that lasted as long as the most recent one did, is people can become a little bit complacent. They can forget what feeling any sort of loss feels like or looks like. Again, redundancy can sometimes be annoying, but it does help to kind of get it to stick in people’s head. It goes back to the importance of the plan, sticking to the plan so that again we’re taking that into consideration and helping us make our decisions.


Marc: Well, if we’re going to talk about the history of a little bit, and John, you started to touch on in some of that, let’s jump in, kind of kick off, and discuss a few of the things because we called this market downturns and recoveries, so let’s look at a few of those, some of those I guess peak moments and how they looked on the down as well as on the upside.


John: One of the more famous ones is black Monday, October 19th, 1987. I was a little boy then, so I wasn’t really paying attention much to what was going on. For some of our listeners, they might remember. It was basically triggered by a computer as tradings and basically the fair evaluation of the dollar against Germany’s currency.


John: That kind of caused it and it was actually pretty quick compared to some other ones. It lasted about three months. In total, the S and P pulled back about 33 percent. In turn, we’ve talked about what follows the bear is typically the bull. Recovery took roughly 18 months and then as Nick mentioned, basically in the initial phase is when you see a lot of your gains, so in the first 12 months after that, the S and P gains were about 21 percent. That’s why it’s important to just stay the course and always stay invested because you don’t want to miss that initial upfront of the basically rally up.


Marc: Got you. We’ve heard a lot of comparisons to this one, the drop of 87 and the speed of it to what we saw obviously with the beginning of the coronavirus as well. We probably saw a lot of that on the news from time to time.


Nick: For sure. We just want to emphasize that this is not to be confused with the Showtime show, Black Monday, although for those that haven’t seen it, it is pretty funny. It is a very adult to show. In these times, if somebody is looking for a little bit of dark humor and levity, the TV show on Showtime’s really funny.


Marc: I’ll have to check that out. Let’s go to the big big boy here because that’s probably the one that’s most … obviously, besides this, fresh in our mind is ’08.


John: In ’08, the main trigger there that caused it was really the housing market in the US basically collapsed. That lasted really from late 2007 to 2009, roughly 17 to 18 months. The dip for the S and P from the peak was about roughly 57 percent down from the highs. The recovery took roughly three years or so, but the 12 months following the pullback, the S and P gained about 68 percent so again, important to stay invested because you just don’t know when that rally is going to happen.


Marc: Yes. The recession, that one … I think that’s where people also … guys, I’ll let you continue on with this analogy in a second, but I think that’s where people are really also just taken aback about how to handle this one because there were economic indicators with the other one. There really wasn’t with this, this is a completely different animal so it’s really hard to say how … we’ve heard them say it’s going to bounce back in a V. Some say it’s going to come back into U. As far as it’s going to come down, go flat for a while, then come back up sharply or whatever. It’s so hard to predict because this is a medical health thing. We really haven’t seen this before.


Nick: Yes, it’s definitely a different sort of situation. Probably a month back, we had sent out an email blast that talked a little bit about some of the previous pullbacks with health related or virus related things. Those were definitely different because we never had this sort of social distancing or…


Marc: Mass closing of businesses.


Nick: Yes. Mass closing and those sorts of things. It will be interesting to see the impact over the next 12 to 18 months. The market’s definitely been dialed in or trying to dial in to what sort of timeframe we’re looking at where people can start to kind of get back to work. There’s definitely much less intermediate term fall out in this so far than we had in the recession.


Marc: Well, some people would say that this was egged on, some of this has been made worse by the Trade Wars and all those kinds of things that we were working our way through that as you know at the end of middle of ’19, end of ’19. Going into ’20, I think we were supposed to start the phase one and all these different kinds of things, so there’s a little bit of data there too.


John: Yes. There was a pullback with the Trade Wars, trade war with China and stuff like that. That was also a pretty quick one where basically the downturn was about three months, S and P went down about 20 percent from the high, recovery was four months. Again, it just bounced back fast and basically almost 38 percent in the next 12 months following that.


Nick: Just for clarity on the time period, this was the fourth quarter of 2018 where the year had started off pretty good. Then, we had that quick drop in the last quarter-


Marc: After Christmas there, yes.


Nick: Their year end statement at the end of 2018. Then, 2019 was such a good year. Part of the reason it was such good year was because of that drop. It’s interesting because people remember how great 2019 was, but they tend to forget what happened at the end of 2018, which is like when your friends go to Vegas and they brag about what they won, but now what they lost. That sort of thing.


Marc: You’ve been talking to my wife again it sounds like because I haven’t been to Vegas in a long time with everything that’s going on. In general, a lot of the information if you’re going to take from this, that’s actually a good point about Q4. I mean, it dropped so fast around Christmas of ’18 and it was bouncing back pretty darn fast. You can miss those days. A lot of the data in there that John shared, it seems like within that first year, there was really potential for missing out on some of those best days. That’s where your timing in the market becomes such an issue. You’re not going to know that.


Nick: Yes. It’s really difficult in … even just the last few weeks have shown the importance of missing some days. There has been some studies and data where one example that we found was if somebody started with a hypothetical investment of $100,000 in 2000 and if they stayed invested in their same allocation the whole period of time, their balance would be at the end of that period, so it would have been at the beginning of this year, they would have been at about 324,000. In the study, the randomized data showed if they missed 10 days of upmarket performance and it was kind of spread out or the time, so it’s not a consecutive day thing. The balance instead of the 324K, had been closer to 162K. If they missed 25 days of the biggest, upswings, they actually would have lost money and ended up at about 82,000. The emphasis on that is really not necessarily the specific days and that sort of thing, but it’s really staying invested, not trying to time too much because somebody that just stayed the course and made good decisions throughout that time, they ended up benefiting the mos. Really, that has played out again over the last few weeks where we’re about 20 percent off the bottom as we speak right now. A lot of that’s come really between three or four days. Missing those days is not ideal.


Marc: Well, what’s the overall conclusion, the kind of lesson if you will, to take from some of this? John, any thoughts as we wrap up this week?


John: Yes. The overall conclusion of I think everything we’ve been talking about is really just staying invested and staying in your initial course of your overall plan, that cost financial plan. Then, that backs into your investment strategy. You really want to just stick to it as hard as it might be. You want to block out any noise that you’re seeing in the media, just focus on your overall goal, just stick to your, stick to your plan, and just really just try to stay invested as best you can. This is where it’s very important for people that are currently retired, that you’ve set up, I think Nick mentioned in one of our last sessions, a liquidation strategy where basically you have buckets to pull from during this volatile period so you don’t have to sell out on your stocks. You really just want to have everything coordinated correctly and again just stay the course.


Marc: Yes, I think that’s where a lot of people too get confused, right? I mean, when things like this happen, we see the market’s dropping or whatever, we start to panic, and we think what’s it doing to our retirement or our potential retirement. Again, depending on how your strategy was set up and how your plan … hopefully, you had one was in place. It may not have affected you as much as it maybe affected your neighbor who didn’t have one or so on and so forth. It really all comes down to working with an advisor, having a plan and a strategy in place that hopefully, again you had in place prior to this, but if you didn’t, don’t feel like you need to sit on your hands and wait until this is all done and over with.


Marc: I’ve seen email questions come in, in different places, different things. Should I not invest? I think Nick, you brought it up I think even last week on our last time on our podcast that, should you still be putting money into your 401k during this time period? All those kinds of things, get those questions answered for you specifically by working with and talking with an advisor. If you’re already working with John and Nick and you’re listening to the podcast because you’re learning more information, great. Then, you’re already on that right path. If you’re not, or you know someone who’s not working with an advisor, let them know, tune into the podcast, check it out, have them give them a call, and have a virtual meeting. Go through the process and see if there’s things that need to be tweaked or adjusted because we’re still going to want to retire.


Marc: I’m 50 and while I still got several years to go before I get to retirement, I still want to make sure that I’m planning for that. I want to get to that point and so I can’t let this thing just derail me entirely. Work with an advisor, have those conversations. (813) 286-7776 is how you can call and talk with John and Nick. They’ll get you set up for a Zoom meeting, go to meeting, or whatever kind of virtual conversation to get the ball rolling, but you can have a talk about your situation with the guys at PFG private wealth, (813) 286-7776 is how you call them.


Marc: Subscribe to the podcast. Go check them out at the website by going to PFGprivatewealth.com. That’s PFGprivatewealth.com. While you’re there, subscribe to us again on Apple, Google, or Spotify. Share it with someone who might benefit from the message, all that good stuff, and we’d certainly appreciate it. Guys, we’re going to get out of here this week. Thanks so much for your time. We went a little bit longer than usual, but that’s okay. Good information here this week on the show. John, appreciate you. Stay safe and stay well. Nick, you too, my friend. Enjoy those walks and we’ll see you soon.


Nick: Take care.


Marc: All right guys, take care. We’ll see you next time here on retirement planning redefined with John and Nick.