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You Don’t Remember the Pullbacks Where You Didn’t Make Mistakes

pullback mistakes

One of the great differences between owning an independent wealth management firm versus when I worked as an employee at a big firm is my perspective on competition.

The people I used to consider competitors I now consider colleagues. It doesn’t mean we don’t compete, it’s just that we don’t see each other as competitors. It doesn’t mean I like all of them.  It doesn’t mean I think they are better or worse or the same as Monument.

What it does mean is that WE TALK…and we talk as colleagues, even though we compete.

Why is that important in the face of one of the worst starts to an investing calendar year in something like the last 40 years?

Because when we talk, we are sharing and comparing opinions. And since I’m assuming this is not the first Monument blog you have ever read, you know what a premium the Team places on opinion. In fact, it’s a major part of our value proposition – we offer unfiltered opinions and straightforward advice.

So, as you can imagine, the current market selloff has prompted discussions amongst colleagues.

And they are interesting because we seem to generally gather around a similar consensus albeit through different data points, observations and perspectives:

  • Bear markets are painful. They suck and no one likes them.
  • It’s really easy to believe doom and gloom predictions when the markets are already down, and you already feel shitty.
  • What investors are REALLY afraid of is that they won’t have the money they need WHEN they need it.
  • Investors get scared that NOW will still exist in the FUTURE.
  • Investors want to sell at the bottom of a sell-off to protect what’s left and wait for things to get better before buying back in.
  • Bear markets are always followed by bull markets, you just never know when the one will end and the other will start.

What we don’t talk about are implementing strategies based on predictions, guesses, or hunches.

Well, technically we TALK about predictions, guesses, and hunches but it’s in the same context as talking about which college football teams will win or lose their next Saturday game.

So, I offer a few thoughts as a way to provide some perspective to anyone reading that is incredibly worried right now and unsure if they should be acting on their emotions or fear.

Pullbacks happen a lot. In fact, since 1980, the average intra-year drop is -14%…meaning at some point in the calendar year, the S&P 500 is down this much (on average) from the previous high.

Using 2000 as a start date and intra-year drops in excess of 10% for the sake of brevity, I will highlight a few you may (or may not) remember:

  • 2000: -17%
  • 2001: -30%
  • 2002: -34%
  • 2003: -14%
  • 2008: -38%
  • 2009: -28%
  • 2010: -16%
  • 2011: -19%
  • 2015: -12%
  • 2016: -11%
  • 2018: -20%
  • 2020: -34%

So, since the beginning of 2000, there are 12 calendar years where the S&P 500 experienced a pullback of greater than 10%.

If I used 5% as a threshold, 19 years would have shown a loss of 5% or greater.

Do you look at that list and say, “Wow, I don’t remember a lot of those pullbacks.”

It’s likely because most forget about all the pullbacks where they didn’t take actions that resulted in mistakes. They simply did nothing, stuck to a plan and a strategy, and waited for a recovery.

What you DO REMEMBER are two things:

  1. The big events like the 2000-2002 Dot.com Bubble and 2008-2009 Financial Crisis
  2. The pullbacks where you took some sort of action and made a mistake

Mistakes aren’t just about selling and missing a recovery. Mistakes include buying and concentrating in certain securities at the wrong times.

For example, the time leading up to the 2000-2003 dot.com bubble is often referred to as a time of monetary excess and gave birth to the term “irrational exuberance”. Institutional investors like VC’s and PE firms along with (so called) Hedge Funds joined individual investors in buying internet highflyers Pets.com, Webvan, eToys.com, GeoCities, Go.com, and my all-time favorite DrKoop.com.

The mistake of BUYING is remembered by everyone who lost money and even those who didn’t.

2008-2009 is remembered as a time where people bought, flipped, and ultimately leveraged houses to such an unsustainable point that it created a massive financial crisis. Again, the mistake was BUYING, not selling at the wrong time.

It’s probable that the pain felt right now is partially attributable to financial stimulus and excess liquidity leading to the mistakes of BUYING (overvalued darling stocks, SPACS, NFTs, Bitcoin, houses, etc.) but it’s POSSIBLE that the pain will be made worse by the mistakes in SELLING.


Key Takeaway

Learn lessons from this pullback and economic slowdown and apply those lessons to the future.  This is a setback that will eventually recover like the ~20%+ pullbacks we had in 2001, 2002, 2008, 2009, 2011, 2018 and 2020.

Remember – you don’t remember the pullbacks where you didn’t make mistakes.

Get the big decisions right. You can’t magically have today the portfolio you wish you had in January 2022. And most importantly, remember that when the recovery does happen, and it will, that you can take the lessons of today and apply them to tomorrow even if you did everything right and didn’t make any mistakes.

Keep looking forward.

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David B. Armstrong, CFA

President & Co-Founder

Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....

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