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The 2009 Collapse That Never Came: A Lesson in Long-Term Investing

ByFrancesco Casarella
Published 03/07/2023, 07:39 AM
Updated 07/09/2023, 06:31 AM
  • Fear and panic can lead to missed investment opportunities, even in the strongest bull markets.
  • Post-bear-market negativity is a common pitfall for investors, but focusing on practical strategies like diversification and asset allocation is essential.
  • Don't rely solely on expert advice or economic predictions - focus on reality and your own investment goals to avoid unnecessary risk.

In March 2009, the subprime mortgage meltdown devastated investors and the financial system. The market had fallen some 58% from its October 2007 peak.

S&P 500 Weekly Chart

The market then rallied for five months in a row from March 2009.

But the narrative for investors and industry professionals was that this was just a technical bounce and that we would go back down, so buy at your own risk!

Market Rally After Hitting Lows

Source: Fundstrat, Bloomberg

What followed was history, one of the best decades with one of the strongest bull markets ever.

This happens all the time. When you add economists, media, and fund managers who ride the post-bear-market negativity, it is easy to fall prey to fear and panic.

I heard another story that one of the possible reasons for the next big crash (which seems imminent) is falling profits.

Falling Profits and Rising Markets

It is a pity that after a bear market like the one in 2022, the markets have had the biggest bounces in history (grey columns)... with falling profits (red columns).

So, the game is always the same: We can be either bearish or bullish, and for each thesis, we can always find some data, some chart, or some expert to confirm our cognitive BIAS.

But then, we have to come back to reality and remember the usual boring stuff: CAP, diversification, strategic and tactical asset allocation, and rebalancing, which I will repeat endlessly.

To try and put some practical spin on these things, I've also started a column on a 60/40 2030 horizon in the hope that it will help.

Finally, the famous pros, here is how they have performed over the last ten years against the S&P 500 index:

Hedge Funds Vs. S&P 500

Source: NYU School

They didn't beat it a single year. So, what are we talking about? If you listen to everybody, you only risk getting hurt.

Disclaimer: This article is for informational purposes only and does not constitute a solicitation, offer, advice, or recommendation to invest as such, nor is it intended to encourage the purchase of any investment. I want to remind you that any type of asset is highly risky and valued from many perspectives. Therefore, any investment decision and the associated risk remain with the investor.

Latest comments

He fails to mention that the fed bailed out the markets through quantitative easing which is somethiing that economosts could not have predicted and only kicked rhe can down the road .thats why the fed has an 8.5 trillion dolllar balnce sheet that it cant get rid of
Two very obvious things: 1) The author carefully picked a period favorable to his thesis, 2) he seems to measure performance by total return, showing he is an amateur. Professional investors measure performance using some indicator that adjust for risk, like the Sharpe Ratio.
The author did say, "But the narrative for investors and industry professionals was that this was just a technical bounce and that we would go back down, so buy at your own risk!"
The market isn't a dichotomy of bearish or bullish. Categories blind. Read price and trend and trade what you see not what you believe.
Nicely put, excuse the pun
agreed
Interesting that this article makes no reference to the interest rates and economic stimulus present at the time of the 2009 market bottom. The FED had already been lowering rates for some time at the time of the 2009 bounce turn bull market and the Government was stimulating the economy and cutting taxes.
Right! Thank god for the Obama Administration taking the proper steps to stave off a potential Depression and to save our economy from disaster.
Obama did nothing. It was the Fed who operates independently. If you want to call Cash for Clunkers a stimulus go for it
Yes, but. The Fed lowered rates through 2008 but the market continued lower in spite of it. The market reversed on the trading day the Fed announced its first ever round of quantitative easing, March 9, 2009.
Hi
I'm puzzled: an expert claims experts' claims are not trustworthy...
You'll have your 2008 moment soon enough, that'll be your lesson.
You get paid to write about traders while traders get paid off what they trade. No skin in the game means no say. Don't overbid your skills here.
Oh yeah it will come 🤣
Just the beginning.
Lol just pick the bottom he says. That was after capitulation which we have not had this time.
yes 2009 was the bottom. 2 years in. and it was only due to massive liquidity being injected into the system. now liquidity will be taken out. also can't be quoting tom lee and expect to be taken seriously...
Funny that he thinks 2009 is long-term investing.
Yes I invested in Feb 2008 and it was the best decision so I agree with what the author had said.
Francesco, 3 cheers, you are rock solid correct.
The letter of the day is S for stagflation, can everybody say stagflation? I thought you could.
i mean the bottom sorry
Indeed nobody knows when was or Will be the Botton. There Is no dip but dips (P. Lynch).
Nice analysis mr Francesco. Thanks for the article
l, think that's great 👍..,.
blah blah blah. in 2009 we became full commie under Obama. They injected 100s of billions of dollars to keep the game going. it's a total sham like Covid
Obama was cleaning up after Bush
You morons have made the word 'commie' meaningless by misusing it all the time. Obama is commie. Wearing Covid masks is commie. Burning your toast is commie. Bad weather is commie.
Another one who hopes for Fed pivot. And this article comes just after Powell reiterated more hikes to come. Look at yield curve inversion, a single monolith predictor of recession.
Now that you mention it … it did cone for the bottom 90 percent ( or havent you noticed the division) , but , now that printing for the top 5 percent is over, 99 percent will get hit !!! Good job Fed!!
Last time was fueled by QE loose money and zero interest rates after the collapse. So far no collapse, so not the same set up…. Yet!
Yep! Print job over !
This time it’s different 😂
Yep , they used up all the free
Recession is coming, like it or not.
Europe is already in deflation and dax index closing ath
You think stupidity is limited to North America?
comparing all time printing high by great margin with anything before is hilarious.
This time is the end. No bailouts No way out.
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