One significant reason why there is such an extreme degree of bearishness, pessimism, bewildering confusion and sheer terror in the minds of investors, is that most people today have nothing in their own experience that they can relate to, which is similar to this market decline. They have the feeling that no one’s ever been here before, because they haven’t been here before.
My message to you is: Courage! We have been here before. Bear markets have lasted this long before. Well-managed investment portfolios have gone down this much before. And investors in those portfolios survived and prospered.
I don’t know if we have seen the absolute bottom of this prolonged bear market, although I think we’ve seen the lows for a lot of individual stocks. I also personally believe that right now, good common stocks in general, and well-managed investment portfolios in particular, probably represent the greatest opportunity for long-term investors that we have seen since early 1942.
In fact, in April 1942, the Wall Street Journal stated: "Brokers say that the lack of trading in stocks and the rising tide of buying bonds stems from the public’s search for the scarce factor these days — security."
Yet on April 28, 1942, in that gloomy environment, in the midst of a war we were losing, faced with shortages of gasoline and other crucial materials, and with the virtual certainty in the minds of everyone that once the war was over we’d face a post-war depression, in that environment, the market turned around.
There was no selling climax. There was no resolution of the serious problems and uncertainties that faced the country and the world. There was no piece of significant good news. And yet, by June 30, 1943, the Dow Jones Industrial Average had made a gain of 54%. By the end of May 1946, four years after the April 1942 low of 92.91, the DJIA stood at 205.61 — a gain of over 121%.
What turned the market around in April of 1942?
Simply a return to reality. Simply a slow but growing recognition that despite all the bad news, despite the gloomy outlook, the country was going to survive; that strongly financed, well-managed corporations were going to survive also. The reality was that those companies were far more valuable than the prices of their stocks indicated. So, on Wednesday, April 29, 1942, for no apparent visible reason, investors again began to recognize reality.
They began to realize that the fact that common stocks had declines for over five years and had been brutally disappointing investments, did not mean that common stocks would never be good investments again. Investors slowly began to look forward and not backward. When they did that, the fact that common stocks had declined for 5 years became irrelevant.
My message to you is: Courage! We have been here before. Bear markets have lasted this long before. Well-managed investment portfolios have gone down this much before. And investors in those portfolios survived and prospered.
I don’t know if we have seen the absolute bottom of this prolonged bear market, although I think we’ve seen the lows for a lot of individual stocks. I also personally believe that right now, good common stocks in general, and well-managed investment portfolios in particular, probably represent the greatest opportunity for long-term investors that we have seen since early 1942.
In fact, in April 1942, the Wall Street Journal stated: "Brokers say that the lack of trading in stocks and the rising tide of buying bonds stems from the public’s search for the scarce factor these days — security."
Yet on April 28, 1942, in that gloomy environment, in the midst of a war we were losing, faced with shortages of gasoline and other crucial materials, and with the virtual certainty in the minds of everyone that once the war was over we’d face a post-war depression, in that environment, the market turned around.
There was no selling climax. There was no resolution of the serious problems and uncertainties that faced the country and the world. There was no piece of significant good news. And yet, by June 30, 1943, the Dow Jones Industrial Average had made a gain of 54%. By the end of May 1946, four years after the April 1942 low of 92.91, the DJIA stood at 205.61 — a gain of over 121%.
What turned the market around in April of 1942?
Simply a return to reality. Simply a slow but growing recognition that despite all the bad news, despite the gloomy outlook, the country was going to survive; that strongly financed, well-managed corporations were going to survive also. The reality was that those companies were far more valuable than the prices of their stocks indicated. So, on Wednesday, April 29, 1942, for no apparent visible reason, investors again began to recognize reality.
They began to realize that the fact that common stocks had declines for over five years and had been brutally disappointing investments, did not mean that common stocks would never be good investments again. Investors slowly began to look forward and not backward. When they did that, the fact that common stocks had declined for 5 years became irrelevant.
- Jim Fullerton, Capital Group Chairman, 1974
