Lessons Learned From A Brief History of the Stock Market

by Benjamin Beck, CFP® Benjamin Beck, CFP® | March 22, 2023

One of the most impactful things that we can discuss and put in front of a client is a kind of visual “history of the stock market,” often shown as a graph of the overall market’s performance from its inception to the present moment. It’s impactful to show a client this – especially for someone who is about to become a client - because it allows us to share openly what has happened in the past, and what is possible or probable. While we cannot predict the future, this visual history of the markets helps to set expectations for the client’s experience.

And what exactly does a visual representation of the ‘history of the stock market’ reveal? Well, you’ve probably seen one of these charts: it consists of a lot of ups and downs – peaks and troughs – over time. The zigzagging up and down motion represents all the volatility in the market. But if you follow the peaks and troughs, those highs and lows, you also notice that over the long term, the trend is upward. The ups and downs don’t ever stop, but if you follow them, their general direction has historically been trending upward.


The Relation Between a Volatile Stock Market and High Returns 

Now there are many advisors in our industry, in financial services, who talk about the value they bring in terms of shielding their client from volatility, or providing “downside protection.” There are entire financial product lines, even companies, devoted to “shielding” clients from volatility. Here at Beck Bode, however, we know that actions that reduce volatility, also reduce your eventual return.

When I sit down with clients to take them through a brief history of the stock market, I take them back around 40 or so years, most often back to the 1980’s. I share with them that a bear market is technically defined as a drop in value of a market index by 20% or more from a recent high. Since 1980, the S&P has technically been in bear territory 6 times. I say “technically” because we have experienced a number of very close, what I call “almost-bear-markets” over the past 40 years. Throw those into the mix, and you will find that the S&P was in bear territory 10 times since 1980. Change the definition of “almost bear” from say, a 19% drop to 15%, and you will get a much larger number of corrections. At around 10 percent you will see what I consider “run-of-the-mill market corrections.”

I like to put this historical chart in front of clients, to have this discussion with them and to let them sit with it. I want the client to understand that the optimal path to their long-term goals will require them to experience times of significant volatility.

The graph shows that these significantly volatile times have been followed by tremendously significant upswings. And these significantly volatile times have been temporary. What you may have heard in the financial industry, is a phrase that describes how I think we all feel when we go through these times, which is “…this time it's different.” But if you look at these periods of decline, as you move along the chart from left to right: the bear markets of 1980, 1987, 1990, 1998, and so forth… all the way up to 2022, you’ll see that we don't know when a bear market is over until the market has recovered fully to another high. It’s quite possible even within a bear market to have another downswing before we get to a high and establish a new low. Not saying it’s probable, but it is possible. Regardless, all bear markets to date have come to an end.


Bear Markets Have Always Been Followed By Recoveries

Here at Beck Bode, we like to do an exercise to investigate what was going on in the world, in the economy and in the markets in every calendar year. The bear market of the 1980’s saw the tail end of very high inflation and historically high interest rates. In 1987 we experienced on October 19th a massive stock market crash where the Dow Jones Industrial Average dropped 508 points losing 22.6% of its value in a single day. The early 1990s, we saw the Savings and Loan crisis among other things. 1998 brought us the Long Term Capital Management (LTCM) hedge fund crisis, a massive hedge fund with $126 billion in assets that almost collapsed. In 2000 the Dot-com bubble burst, affecting the entire market but in particular the technology sector. And then in 2007 through 2009 we saw the meltdown of the stock market, the housing bubble burst, we had the subprime mortgage crisis and other factors leading to The Great Recession, the largest economic decline globally since The Great Depression.

I took you on this brief tour of history because every time we go through periods like this, I have felt this overwhelming feeling of “yes, while I know there have been bear markets in the past, this one does feel different.” You may have felt that even though we have gone through troubles economically, geopolitically, and otherwise, this time it’s different. And if there EVER was a time when you would be justified in saying “this time it’s different,” wouldn’t that be in 2020? The global pandemic and the years since – which brought us Covid, the human toll, the global shutdown of the economy, so much disruption, geopolitical turmoil… certainly today you could make that strongest argument that you perhaps ever could in the history of the markets that this time it’s different?

Yet we all know what happened. Yes, there was devastation and loss, for sure. But as far as the markets and the economy are concerned, those recovered. Every single time. So, whether you are about to become a client of ours, or maybe you already are a client of ours, it’s important to sit down with this visual chart to really understand the story that this picture is telling. Maybe you are considering leaving your existing financial advisor because they are not communicating with you or providing you with the level of service you desire. Maybe you are just starting out and want help in moving toward your financial goals, or maybe you’re planning for retirement and need help with figuring out how much, and when, and all the big questions that come with that endeavor. Whatever it is for you, you’re reading this today because you want (or at some point wanted) help.


How The History of the Stock Market Affects Your Financial Goals

I want you to take some time to think about how the brief history of the stock market affects your personal financial decision-making. Sometime in the future, you may need to (re-)visit this graph and acknowledge that whatever point of time you are in, “this time is not different.” As investors, we ALL (myself included) need to occasionally be reminded that the only thing that is going to get in the way of our optimal lifetime portfolio return has little to do with this chart, or with what the markets do, or what’s going on in the world - and everything to do with what we do as human beings. It is our human reactions to the movements of the stock markets, our reactivity to the volatility, that interrupts our ability to stay invested.

A financial advisor who puts your interests first will take the time to sit with you and explore your most cherished goals and dreams in detail. They will take the time to put together a statement of those goals and objectives, to create a blueprint that is necessary to achieve those goals from a financial perspective. They will then present to you the optimal portfolio consisting of some of the greatest companies in the world, encompassed in a disciplined methodology, to fund your plan. They will present all of this to you in a way that makes sense to you: a plan that accurately captures your vision, and a portfolio design and investment methodology that you can firmly understand.

Most importantly, a good financial guide will openly discuss their responsibility as your trusted advisor, to help prevent you from getting in the way of your own success. The path to success has everything to do with going through the difficult times that we know ARE temporary but may not FEEL temporary. A good advisor will bring you back to this graph and remind you of this brief history of the stock market.

Learn more about Beck Bode investment management services.


Ben Beck is Managing Partner & Chief Investment Officer at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business and life.

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