You know nothing Jon Snow
It would be an understatement to say that Game of Thrones had a somewhat uneven conclusion that left fans with mixed feelings about the whole franchise, but what remains undeniably great about the series is the dialogue. As the stock market notched its tenth consecutive gain last month, I couldn't help but think of the quote mentioned above - "You know nothing, Jon Snow." This was a popular refrain used by Snow's companion throughout their time together. Jon wasn't a dummy, but he was unaware of what he didn't know. I like to apply this to investing. We live in a 24-hour information cycle with multiple social media platforms. The need for fresh content to populate these channels is omnipresent. This creates a powerful incentive for people who know a lot about the market to predict what will happen next. This, of course, is unwise. The market works best when you prepare yourself through research for all future scenarios while also reminding yourself daily that you have no idea what will happen next. In short, you have to study everything about the market and the economy, but accept like Jon Snow that you know nothing. The benefit is that you leave yourself in position to take advantage of what the market gives you instead of fighting the market due to a prediction made in public or private that leaves you too embarrassed or proud to admit you were wrong. I personally like to study the bear markets and crashes that have occurred in the past. Historically speaking, the market has always gone up - over time. Thus one of the best ways to build wealth in the stock market is to get in at the lowest price possible as it increases in value. This is really no different than real estate. The price your grandparents paid for their home was lower than your parents, and at today's nosebleed levels, it is definitely less than what first-time homeowners are currently paying. That being said, as the chart below shows, there are periods along the way where real estate prices drop due to bubbles, social unrest, and changing demographics. Taking advantage of those windows of opportunity is a great way to build wealth in real estate.
The same holds true for the stock market.
The charts below show all of the tremendous wealth-building opportunities (i.e., crashes and bear markets) in the stock market since 1870, along with the undeniable rise of the stock market (see Growth of $1 further down) in value over the same period.
Opportunity and Generational Wealth Building How much wealthier would your family be if your ancestors had invested $1,000 during the Great Depression? As shown above, a $100 investment at the bull market's peak preceding the 1929 crash would be worth over $20,000 today. A great return! However, that same $100 invested near the depths of the 1929 crash would be worth $70,000 now. The opportunity to nearly quadruple your gains came in the form of the worst bear market on record. This is relevant when you stop viewing the market as merely a means for retirement and instead see it for the wealth-building vehicle it truly is! Just one wise investor in the family possessing this perspective will have the foresight to buy into the market when others are selling. Not necessarily to enrich just herself, but for her daughter, granddaughter, and beyond.
Conclusion It's safe to say that prolonged periods of economic prosperity and stock market gains are followed by recessions and bear markets. The post-World War II prosperity enjoyed in the 50s and 60s was replaced by stagflation and a nearly decade-long bear market in the 70s. The 90s tech stock boom gave way to two bear markets in the first 10 years of the new century. This rotation is just part of the economic cycle. The key is not to predict when the cycle will turn for the worse but to prepare for the provided wealth-building opportunities. Attempts to determine when markets will stop rising will leave you out of position. It's best to assume like Jon Snow, you know nothing. If you have any questions about how inflation, resurging COVID-19 cases, or simply a slow down in the economy may affect your portfolio, please give your Wilson Wealth investment advisor representative a call. Maurice L. Wilson, Charlotte Office