Buying stocks at the peak

Clearly, there were many poor souls who bought stocks on Tuesday, October 9, 2007. I should know: I was one of them. And it’s highly likely that we put some of our clients’ hard-earned money into equities on that fateful day as well.

That’s the day the S&P 500 reached a record high of 1,565 – possibly the worst day in a generation to invest in stocks. For the next 17 months, the index lost nearly 57% of its value in what is now known as the Global Financial Crisis of 2007-08, accompanied by the worst economic decline since the Great Depression.

For me, the crash of 2007-09 still feels like yesterday, as it might for you. But it ended more than 15 years ago now, on March 9, 2009. And if you were lucky enough to buy stocks on that day, chances are you would likely be delighted with your results. The S&P 500 index has returned nearly 16% a year with dividends reinvested.

So, what about the unfortunate investor who bought stocks near the market’s 2007 peak instead of at the 2009 bottom – a nightmare of unfortunate timing?

Before we crunch those numbers, a little perspective. From that 2007 peak, it took quite some time for the S&P 500 just to break even after losing more than half its value: the full recovery took nearly six years.

The Global Financial Crisis was just the first of three bear markets since 2007. We’ve also lived through COVID, Russia’s invasion of Ukraine, and perhaps the deepest social and political division the U.S. has seen since the Civil War.

Assuming you were able to survive all this time as an equity investor – having made that big “mistake” of buying stocks at the top of the market and waiting nearly six years just to get back where you started – you might not be ashamed of your results. The S&P 500 is up nearly 10% a year with dividends reinvested. Not so shabby.

As portfolio managers, our job is to build and manage investment portfolios that reflect the financial goals, time horizon, and risk tolerance of each client we serve. We don’t believe markets can be “timed” with consistent success. We think success on owning stocks is based not so much on when you buy and sell, but how long you own them.

And we agree as usual with Warren Buffett, who once said, “Our favorite holding period is forever.”

Successful market timing depends largely on being lucky, over and over again, and that’s not something any of us should count on. But history has shown us, mercifully, that the longer we own stocks, the more likely we are to be pleased with our results, and that’s good enough for me.