Market history demonstrates that patience can compensate for even the worst timing when it comes to investing. As consumer confidence fell to a 17-month low in December, concerns about an impending recession have intensified. Despite this, the S&P 500 recently achieved a new all-time high, leading some market watchers to believe that a downturn is on the horizon.
In this climate of uncertainty, the legendary investor Warren Buffett’s advice rings true: trying to predict market movements is often futile. However, it’s interesting to ponder the potential outcomes for investors who take the worst possible approach. To illustrate this, an experiment was conducted that examined a hypothetical investor, referred to as Joe, who made five separate investments in index funds tracking the S&P 500 at historically unfavorable times.
### Market Top No. 1: December 1965
Joe’s first investment of $10,000 was made in December 1965, a challenging period for stocks. From this point until October 1981, the S&P 500 returned a meager 1.7% per year. Although there was no market crash in 1965, valuations were unreasonably high, according to Buffett. Joe’s investment grew to $13,600 over almost 16 years, amounting to a modest 31% gain that barely kept pace with inflation.
### Market Top No. 2: October 1987
Joe’s next foray occurred right before “Black Monday” on October 19, 1987, when the S&P 500 plummeted by 30% in a single day. This led to a steep decline in Joe’s investment, dropping from $10,000 to $7,000 almost instantaneously, illustrating the painful consequences of timing the market poorly.
### Market Top No. 3: March 2000
Following this, Joe invested $10,000 in March 2000 just before the tech bubble burst. Though the collapse is often associated with the Nasdaq, it also impacted the S&P 500 significantly. Joe’s investment halved in value to $5,000 by September 2002, and it wasn’t until 2007 that he saw a recovery.
### Market Top No. 4: October 2007
Joe’s fourth investment came in October 2007, shortly before the financial crisis unfolded in 2008-2009. His $10,000 investment plummeted by over 50%, dropping to less than $5,000 within two years as the S&P fell from 1,549 to a low of 666 in March 2009. It took until early 2013 for the S&P 500 to recover to October 2007 levels, turning Joe’s investment into essentially dead money for almost six years.
### Market Top No. 5: February 2020
Joe’s last investment occurred on February 19, 2020, just days before the COVID-19 pandemic caused a sharp market decline. Despite this initial drop, the S&P 500 quickly rebounded, but Joe was left contemplating whether he should have bought during the dip rather than at a market peak.
### Overall Impact
Despite the rocky beginnings, Joe’s hypothetical journey reveals a surprising outcome: if he held onto all his investments until today, his fortunes would have dramatically changed. The original $10,000 from each market top would have transformed as follows:
– The 1965 investment grew to $757,120.
– The 1987 investment blossomed to $308,150.
– The 2000 investment reached $50,120.
– The 2007 investment became $44,760.
– The 2020 investment turned into $20,450.
In total, Joe’s initial investment of $50,000 across five tumultuous periods resulted in an impressive $1.18 million. This exercise reinforces the adage that “time in the markets beats timing the markets.”
While present-day headlines are filled with concerns and challenges, history reminds us that adversity is part of the investment landscape. Whether encountering economic downturns, conflicts, or global crises, patient and prudent investors have the potential to weather the storm and emerge successful over time.
