So far, this year has disappointed many investors. Unfortunately, bad years are inevitable. For long-term investors, however, bad years may even be desirable. Recoveries are also inevitable -- and much more fun.
By
But, one thing I can't deny -- the show makes an impact. When I was a kid -- yes, we are talking decades ago -- I saw an episode where Lucy and Ethel sign up for elocution lessons. The instructor (who came to their home in the interest of keeping set construction costs down) informed Lucy and Ethel that the two words he hated most were "lousy" and "swell," and he hoped never to hear such words from his pupils. Lucy responded that they would never use such words because that would "sure be a lousy way to start off such a swell class!"
It's been at least 20 years, if not 30, since I've seen that show, yet I still envision that scene every time I even think about using the word lousy. But, you know what? This has been a lousy year. And I'm glad it has.
OK, ready for another cultural reference? This time it's Pollyanna, who played the "glad game" with her father whenever something bad happened. When they had to eat beans and fishcakes for dinner, they were glad to eat them because so many other people in the world had no dinner. When Pollyanna got a crutch instead of a doll in the missionary barrel, she was glad that she didn't need to use it. (Are you tearing up yet?) But, I have a baser motive for being glad this is a lousy year. Lousy years are often followed by great years.
When it comes to investing, lousy years seem to be inevitable. But, if you look below at the history of the Dow, you will see that, except for the 1970s (oil shocks and raging inflation), every lousy year is followed by a good, or even a great, year. (I'm defining "lousy" as negative or single-digit returns -- that makes them easy to spot.)
See what I mean? While it is the nature of markets to tumble, it is also their nature to recover. And historically, the recovery is (eventually) stronger than the crash. None of this proves that we won't see several bad years in a row, of course. But, I find a review of how the market behaves to be very reassuring when times are tough.
Tough times are inevitable and probably even desirable, since they serve to weed out weak companies and set the stage for stronger economic growth. They also tend to weed out day traders, and they nicely trim the unrealistic expectations encouraged by long periods of high returns.
So, I don't mind that we are having a lousy year. I'm expecting a swell recovery.
Fool on and prosper!
Dow 30 Foolish 4
1961 22.74% 20.50%
1962 -7.25% 12.89%
1963 22.98% 18.62%
1964 17.94% 24.66%
1965 17.31% 15.84%
1966 -15.08% -22.89%
1967 21.80% 34.07%
1968 10.06% 18.34%
1969 -9.27% -8.41%
1970 5.06% -14.20%
1971 9.06% 19.74%
1972 16.73% 16.59%
1973 -10.86% 17.28%
1974 -15.64% 20.00%
1975 44.24% 68.71%
1976 29.37% 37.93%
1977 -12.56% -2.96%
1978 2.50% 9.89%
1979 11.34% 17.70%
1980 25.30% 22.68%
1981 -3.26% 9.66%
1982 19.53% 56.88%
1983 35.58% 36.72%
1984 -0.12% 10.30%
1985 30.98% 49.82%
1986 21.87% 29.67%
1987 15.74% 17.89%
1988 13.70% 21.68%
1989 31.95% 47.34%
1990 -9.14% -17.61%
1991 30.36% 34.81%
1992 11.04% 30.24%
1993 17.91% 30.26%
1994 3.70% 7.38%
1995 36.69% 47.05%
1996 24.32% 26.56%
1997 22.33% 19.49%
1998 15.95% 15.64%
1999 20.57% 21.47%