Yesterday the S&P 500 closed February at 735 marginally below its previous cycle low of 741. Not good. The next few days will tell the tale of whether this is a momentary blip that will now trigger a wave of long awaited buying pressure or the beginning of a fresh leg down for the S&P. Emotional responses and opinions here are useless, the price action will speak for itself. Meanwhile the Canadian market (TSX) finished at 8123 so far holding a few hundred points above its prior lows. If we could see the future we would know the date that this market crisis finally ends. It will end one of these days. Markets will eventually go back to gradually climbing a wall of worry. The art of surviving these times is to mentally prepare for various outcomes and be flexible. Lots of cash is key. Without liquidity and cash there can be no ability to capitalize opportunities when they present. And there are lots of opportunities in the offing.
In 2008 Warren Buffett's company posted its largest book value loss ever in its 44-year history at -9.6%. But even more relevant to his shareholders is that the market value of their shares fell 50% over the past year. I included the following chart to 2006 in my book in 2007; here is the updated history from Berkshire Hathaway's 2009 financial summary.
berkshireletter 2009
Buffett does not know when this market crisis will end either, but he has billions in cash and he has been buying equities over the past year.
The following chart from www.financialgraphart.com offers some big picture perspective on the bear of 2007-2009 relative to all the other bear markets since 1929. See How Far Have We Fallen? The depth of this market decline is already second only to the Great Crash of '29, but time wise we see that it has so far lasted less than the average. None of this tells us how much longer or deeper this bear go. But is still a useful perspective to see our experience in its historical context. We are living through a bad bear, but nothing about it is “unprecedented” or unpredictable. We very much look forward to the recovery.
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I've given up on making predictions about this particular bear market. Many previous downturns were a picnic compared to what we're facing today. As Bill Fleckenstein put it, “What we are now dealing with is roughly 20 years' worth of massive speculation and excess leverage.” And Obama himself warned of a potential “lost decade” in his speech last week.
While a recovery is likely to be a long time coming, there will (as in any bear) be trading opportunities.
Thanks Danielle for your updates on the markets. I really appreciate hearing your opinions.
Joan
I read your book recently, by chance. Very impressed!
(Wish I'd read the it before the market crashed late last year! )
I'm self employed and went through similar cycles in California's real estate. I made enough money during 1980s, to enable me to retire comfortably. Then I managed to loose almost all, in the long and painful California real estate crash, between 1990 to 1997. So, I learned my first expansive lesson!
After 9/11, encouraged by Greenspan's easy money policy, going against the dismal predictions by Prof. Robert Shiller (of the Case-Shiller index), I rode the real estate bubble all the way up. Then lucky enough managed to sell enough, before the bubble busted wide open again in 2007.
Hopefully this time I myself, as well as many boomers, have learned an expansive lesson about the stock market and the wall street– You need to stand on guard yourself.
Thank you for your book and the post. It's a fresh air amid a lot of Wall Street noises and jitters.