GreenStar Newsletter Excerpt – January 2021
A Common Tribulation
When we are isolated, it’s only natural to become myopic. We suspect that history will very much speak of the pandemic in terms of a global crisis, and how it was something that all the people of the earth dealt with and ultimately overcame. However, going through it somehow feels like tunnel vision.
It is strange to think how this is something everyone you know has gone through and it will be a shared common experience for all humans. Someday you may travel to Kyrgyzstan and the people there will have their own similar experiences with social distancing, mask wearing, and the return to normal.
We wonder what the world will be like on the other side of this. It’s strange to sit here knowing that the world has changed, but we just don’t know how yet. Looking back at the Spanish Flu of 1918-1920, it’s easily to draw a line between that and the celebratory Roaring 20s. We hope that humanity emerges wiser and appreciative from its tribulation.
But Will It Rhyme?
We created a chart of the Dow Jones Industrial Average during and after the Spanish Flu. This was an era very different than ours because it coincided with the end of the first World War (1914-1918) that caused massive devastation itself.
In the animation below, we can see the Dow Jones from 1916-1942. We can see that those who entered the market right after the pandemic, did well for themselves (roughly a 5x of their investment) until the peak 10 years later in 1929. The continuation of the chart shows that during the first two years of The Great Depression, 10 years of their gains were wiped out.
There are two things we can conclude from this chart. First, a great devastation can be the start of a solid long-term equity market. Globally, the established governments have been printing money through this. Logic would have it that at some point this would be inflationary which, in moderation, can inflate risk asset prices, including stocks. One could also see that an age of hope could emerge from this and many people could have a renewed passion to live life, and from an economic perspective, spend money.
Second, we can conclude that the stock market is a place that can multiply wealth 5x over 10 years and wipe the gains out in less than two. This is what every retiree fears. We very much advocate patience during poor economic times. However, the older you get, the notion of patience is not open ended.
This risk is impossible to predict, but it is only by knowing your own objectives and pairing them with suitable investments that can make this possibility less of a risk to you personally.