Expect to Be Surprised

Investing in the stock market isn’t for the faint of heart. Stock investors periodically get blindsided by events that wreak havoc on their portfolios. There are things that come out of nowhere that collapse prices.

And there’s nothing investors can do about it.

Take, for example, February and March 2020. Before Covid hit, things were looking good. The stock market returned 31% the year before and hit an all-time high on February 19. The good times were set to roll. Then, seemingly out of nowhere, a virus upended the U.S. economy – and the entire world.

The stock market slashed 34% of its value – trillions of dollars – in a matter of 30 days.

No one saw it coming.

There are plenty of other examples, too. What about the three years after the turn of the new century? The stock market had been on a heater in the late 1990s. Before the calendar flipped to the year 2000, the stock market had closed higher for nine straight years. Here were the stock returns of the last five years of the 20^th century:

1995: +37%

1996: +23%

1997: +33%

1998: +28%

1999: +21%

If you were in the stock market, you were getting rich in the late 1990s. The dot-come bubble was expanding, and if you weren’t making 30-40% returns every year, you were a chump.

The turn of the century completely changed that mindset.

Here are the stock market returns for the first three years of the 21^st century:

2000: -9%

2001: -12%

2002: -22%

I’m glad I wasn’t advising clients in the early 2000s. It must have been brutal, explaining to clients why their accounts were falling in value, every year for three years in a row. And even worse, the losses grew larger each year. It was cruel and unusual punishment after years of bliss.

If you invest in stocks, you should expect to be surprised on occasion.

We won’t even discuss the losses tied to the Great Recession from 2008-2009, or the bear market of 1973-1974, or the Great Depression in the 1930s, during which the U.S. stock market fell a staggering 89%. I hope we never see anything remotely comparable in my lifetime – but we can’t rule it out.

Stock market investors’ nerves, grit, and courage were tested in each and every one of those instances.

But remember this: Perhaps the most surprising thing about investing in the stock market is likely to be how well you will do by hanging on and remaining invested through thick and thin. In fact, history would indicate that outcome being the most likely.

Given enough time, even small sums of money invested in the stock market can turn into princely piles. So, yeah, the stock market will surprise you.

Fortunately, not all its surprises are bad.