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'Toto, I've a feeling we're not in Kansas anymore.' The math of a market crash – Thumbnail

'Toto, I've a feeling we're not in Kansas anymore.' The math of a market crash –


Just like Dorothy said in the Wizard of Oz, it’s a feeling.  The math you must know if this is the crash of 2020. 

To reference my Roller Coaster article (Aug 2019), “We may very well be at the end of the longest Bull Market in modern history.”  It’s just a feeling but it’s simply way overdue.  Here is the math you must know:

Don’t be Chicken Little- The results of research done by Dalbar Inc., a company which studies investor behavior and analyzes investor market returns, consistently show that the average investor earns below-average returns.  Why?  Overreacting.  The math shows overreacting is the difference between 20yr market returns of 9.85% a year and the average investor earning only 5.19%. [1]

Our Dividend Portfolio is built on math- 

  • Dividends are paid on the number of shares you own NOT on the market based value of those shares.  Markets go up, down and sideways, that is why we focus on companies fiscally strong enough to endure market cycles, but also to be profitable enough to consistently pay dividends.
  • Your dividend paying companies span decades. During up market years, I hear clients ask why we don’t own the new fast growing companies that are rocking the market.  Why? Because in down markets, you want to own the companies that have been through several market corrections.
  • $211,792,962,709.00 in cash right now.  Stop and figure out if that number is millions or billions?  Got it? That is the total amount of cash the stocks in our Dividend Portfolio have.  Think they can weather a few storms and still pay you dividends?
  • Simplicitree®- our financial planning software considers your retirement plan successful when you’re required rate of return is ZERO.  That means we do not factor in, nor depend on bull markets to succeed.  What do we depend on?  Dividends.
  • If you sell out, you won’t have the dividends to live on, and inflation will erode your retirement.  You’ll miss the time to buy back in, and you’ll be the average investor (See don’t be Chicken Little).

The faster it gets bad, the better!  Seriously. Here is a look at some notable bear markets of the past 80 years, with the crash of 1929 shown for comparison. [2]

  • 1929-1932: 34 months
  • 1980-1982: 27 months
  • 2007-2009: 17 months

What do those bear markets have in common?  A financial S*** show.  This market has Coronavirus?!?.  Not a near global banking collapse (2008), a Great Depression (1929), nor a gas shortage with rampant inflation (1980).  No, I want you to compare this to a bear market that corrected simply because it went up too much for too long1987, which lost 33% and lasted a whopping three months.  Doesn’t flu season stop in about three months from now?

Believe me when I say, if this is the crash of 2020, the faster it falls the quicker we can get past it, and trust in the math! 

As always, I’m here for each and every one of you if want to chat.

Nathan Wilson

[1] https://www.thebalance.com/why-average-investors-earn-below-average-market-returns-2388519

[2] http://www.nbcnews.com/id/37740147/ns/business-stocks_and_economy/t/historic-bear-markets/