The Biggest Stock Market Collapse in Our Lifetime is now a Distant Memory.

The stock market decline in 2008 and through 2009 was the greatest percentage decline since the Great Depression of the 1920’s.

Stock Market Crash 1929

This time period was so severe they call it the Great Recession. I can tell you, there was nothing great about it. Courtesy of let’s have a look.

Portfolio 1 is the Canadian stock market represented by the TSX 60 fund XIU

Portfolio 2 is the US stock market represented by the S&P 500 fund IVV

Index declines Great RecessionWe can see that the US markets fell by over 50% while the Canadian market declined by some 44%. It’s also known as the Financial Crisis. The recession had its roots and cause(s) within the US housing and real estate market. You may have forgotten popular phrases of the time such as CDO’s or Collateralized Debt Obligations. What that means is massive financial institutions bought a bunch of useless and worthless mortgages that were packaged together and resold, and resold and resold and resold until no one in the end knew what they held as an investment. And then, investment companies started making bets (synthetic derivative contracts) on the value of those CDOs. Eventually the synthetic bets had a value much, much greater than the value of the actual CDO investments. And once again the value of the CDOs was essentially zero. So we had massive bets on worthless investments.

Oh, by the way, the CDOs were rated to be of the highest quality known to investor kind, because they were ‘backed’ by mortgages. Ha.

You should watch the wonderful movie The Big Short. That’s the link to the official trailer. It’s a great watch on its own, you’ll even hear some Led Zeppelin – When The Levee Breaks. Oh, did that levee break. That’s a great movie – especially for the Horror genre. I’d put it up there with The Exorcist. I’d provide a link to The Exorcist but I’m afraid to go watch that one again.

I have a small role in The Big Short as well. There’s a moment in the movie when they refer to the workers in the financial industry who lost their jobs due to the financial meltdown – that’s me. In a moment of impeccable career planning I was working as the creative lead for ING Direct US. Yup, not only did I pick a bad time to work in the financial industry, I picked a bad time to work almost entirely on an account and company that was in the United States of America. ING Group invested ‘a ton’ in those worthless investments, enough so that she went bankrupt. Or the company would have went bankrupt if not for the bailout courtesy of federal government agencies.

Net, net, ING Group, the mothership in the Netherlands called the Toronto office of GWP Brand Engineering to give the bad news. Marketing budgets were slashed to the bone. I got the call into ‘the office’. Bye bye pay cheque, hello freedom and freelance world. And no worries on that front, I found my way. In fact I stayed friends with the folks at GWP and even returned to work with them; that even included a healthy retainer for about 15 or 20 hours of work per week. Here’s a tip, when you get ‘fired’ don’t get mad, call back and offer to take your former boss out to lunch. That’s why I did. Rebuild those bridges.

I stayed freelance up until the time I entered the financial industry on the advice front in 2013 with Tangerine Investments. I left that position that I loved and launched this blog in June of 2018. What a fun ride! What an interesting 10 plus years to say the least.

Those 10 year investment charts no longer include the Great Recession. 

10 years is a long time. And 10 years without a major correction increases the risks for investors. The reason for that is, if you look at a 10-year chart, it no longer includes that market correction. The US stock market bottomed on March 9, of 2009. If we run a chart from March of 2019 to present it looks like this.

Once again Portfolio 1 is the Canadian market, Portfolio 2 is the US market.

Canada and US Markets from bottomThe correction does not even register. And the trouble is, the correction also does not register with investors. It’s a distant memory. That can certainly affect our interpretation of what is our ‘risk tolerance level’. Your tolerance for risk is a feeling. What does it feel like to watch your portfolio decline by some 30%, 40%, 50% or more? Many investors simply don’t know; they have not invested through a market correction. For those of us who did invest through 2008-2009 and 2000-2002 we’ve lost that losing feeling. We’re soft. We’re getting a few market love taps here and there, but no real hard body shots. Here’s my Seeking Alpha effort from 1 year ago, Mr. Volatility is Asking You, Taunting You. So Do You Wanna Go? We’ve had a few minor opportunities to check in on our risk tolerance level. We have had some very courteous warning shots.

10 years is a meaningful time period for evaluation. But an investment strategy and investment behaviour is best measured through market volatility and through market corrections. We are in unique territory in the midst of the second longest bull market run for US Stocks. Canada has certainly been more than choppy.

More Learning from those Tangerine Charts 

Yes, I’ve used these charts before. They offer a wonderful learning opportunity as they represent real asset allocation models that move through that major market correction. The Tangerine Balanced Portfolios were launched in January of 2008.

Here’s The Investment Lessons of One Very Telling Tangerine Chart.

And here’s the most recent chart, er make that table, to end of January 31, 2019. Of course Inception refers to the returns from the Day 1 launch of the funds. Notice the difference between the Inception annual returns vs the 10 years annual returns? Massive. For the Balanced Growth Portfolio the difference is 3.4% annual. What a difference a few months makes. Market corrections are the great equalizer.

Tangerine Balanced Portfolios Through Market Crisis

Don’t get too comfortable. 

I’m not saying for a second that we’re going to get a major market correction. I have no idea. If someone tells you that they know that a major market correction or recession looms, run away. And take your money too if that information is coming from your financial advisor. We don’t guess.

We always invest within our risk tolerance level. 

Be prepared. Be honest with yourself. Know thyself.

This article might help you match your risk tolerance level to your portfolio risk level. Here’s my guest post on the findependencehub Which All-One-One, One Ticket Portfolio Is Right For You?

Thanks for reading. Kindly hit those share buttons for Twitter, Facebook and LinkedIn at the bottom on this article. You can click Follow Cut The Crap Investing at the very bottom of this page.

Questions to Dale or better yet, leave a comment.

4 thoughts

  1. I just read “Crashed” by the British historian Adam Tooze. The Economist, NY Times and the Financial Times wrote rave reviews … and I’ll add to that. His narrative/writing style is compelling … I kept thinking “how could any one person write this book”.

    Here’s a 20 minute interview with the author


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