Sixteen Years of Investment Experience (Or Less)

Since 2009, “buying the dip” has been a phenomenal strategy.^[i] But is that always the case?

As always, I’ll use S&P 500 data because it’s readily available. The following data is courtesy of www.macrotrends.net and another public source (this website).

From January 2009 to the end of September of this year, the S&P 500 has grown by almost 650% (just over 900% with dividends reinvested). That’s one hell of a run.

Along the way there were a few ugly dips. The two that stand out are the Covid Crash in 2020 and the Great Inflation of 2022.^[ii] It took five or six months from the March low for the S&P 500 to hit a new all time high after the Covid Crash. And it took almost eighteen months to recover from the Great Inflation. Investors were rewarded quickly if they bought the dip.

But what happened before that? From January 1998 to the end of 2009, the S&P 500 was pretty much flat. We call it “The Lost Decade” for a reason. If you bought the dip after the Tech Crash, or 9/11, or the Enron scandal, you looked like a genius for a few years. But then 2008 wiped it all out.

We can go back even further and look at the mid-60s to mid-70s. Buying the dip in 1966 or 1970 would have made you look smart short term, but the 1974 bear market would have wiped out all your gains.

A quick plug about diversification: markets outside the S&P 500 performed better in those periods. Small-cap companies did well in the Lost Decade, and the Canadian market (the TSX) also provided modest gains in the Lost Decade and the 70s. The TSX’s performance wasn’t amazing, but it was better than negative.

Why am I bringing this up? Because anyone who started investing at any point since 2009 doesn’t know what it’s like to have to wait more than a year for markets to recover.

In every meeting with every client, I bring this up. Those with investment experience dating back to before 2008 get it. They know how bad it can be. But those who have sixteen years or less of experience? “Oh, yeah, Vince. It always recovers so quickly.” No, it doesn’t. Not always.

I’m using ten-year windows, but most investors, assuming they start their investing journey in their twenties or thirties, have sixty- to seventy-year investment horizons.

When your investment horizon is that long, a lost decade (or two) will hurt like hell, but it won’t affect the power of long-term compounded growth. Just make sure you stay appropriately diversified and only sell if you need income in retirement. Otherwise, just keep buying.

[i] Buying whenever you have money available remains the best strategy, though.
[ii] I believe the Covid Crash is also known as the Pandemic Plunge, but I’m not familiar of another term for 2022.