There’s Always a Believable Story

Apr 2010

. . . consider the recession of the 1990s and its accompanying bear market.  Or the Y2K scare.  Or the post 9-11 situation.  Or the stock market crash of 1987—down 22% in just one day.  Or the savings-and-loan crisis.  Or the various junk bond crises.  Or the [fill in your choice for worst President] administration’s various blunders.  The list goes on. Of course, none of these believable-at-the-time scares significantly dented the long-term progress of the U.S. economy—or the stock market.  Yet to judge by investors’ fears at each juncture, the future course of American prosperity was anything but obvious to many people.  Each scare seemed very real at the time and was accompanied by nervous investors selling stocks (often near market lows) and running for perceived safety elsewhere.  (Not that they necessarily found safety elsewhere.)  Each scare—accompanied by the latest “this time is truly different” disaster story— seemed to refute long-term economic growth.  For a while, that is.  Yet eventually—without fail in our history—investors ultimately found themselves pleas­antly surprised that economic growth resumed.  Despite a historical record of over 200 years of long-term economic growth that has overcome substantial near-term problems—think of the Civil War or the Great Depression, both many times worse than anything in recent years—many investors were surprised each time when history repeated itself. . . . What we learn from history, as Benjamin Disraeli noted, is that we don’t learn from history.