“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
At Vickery Financial, we know that successful investing is not easy. It requires, among other things, a disciplined plan, a consistent and well-reasoned investment philosophy and a long-term view. But even with those conditions in place, markets continually confound amateur investors and experts alike. Sometimes, believing “this time is different” can be detrimental to you and your wealth, whereas occasionally it truly is ‘different’ this time. Only with the benefit of perfect 20/20 hindsight can we know for sure. In that vein, I’d like to share some humbling charts this month from Pension Partners that illustrate how difficult it is to “know something for sure” in the world of investments.
The first chart shows the astonishing plunge in Switzerland’s 10-year government bond yields over the last nine years. Just for fun, cover up the right half of the chart and imagine what it looked like in the summer of 2012, when the yield had already fallen to 0.5%. Would you think “yields can’t possibly go any lower”? Or how about when they hit zero in the fall of 2014 – would you have thought to yourself “well, at least I know yields can’t go negative.” Turns out they can, and they did.
Next we have chart #2:
I can remember several market gurus and real estate “experts” in 2005 and 2006 declaring that a bubble in residential housing was impossible because home prices have never fallen at the national level. But nothing is truly ‘impossible’ in financial markets, even if it has never happened before. In retrospect, that turned out to be a perfect case of “this time is different” as home prices proceeded to fall by 27% nationally over the next six years.
And finally, we have chart #3:
This chart reminds me of the old investing adage “we’re overdue for a pullback.” Consider how many investors in 1995 were thinking “The market is too high – I’ll just wait for a 5% or 10% dip and then I’ll buy.” Well for 19 months in a row that pullback never came, and in fact the S&P 500 went on running higher for 3 ½ more years. It’s almost as if the market doesn’t care what we think we ‘know’!