Why Does the Current Downturn Feel Worse Than the Pandemic Downturn?

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

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Transcript:

Easan Arulanantham:

Why does this current downturn feel so much worse than the pandemic downturn?

Tom Vaughan:


Yeah, it’s a difference in pain, right? I mean, the pandemic downturn was more like that sharp, short pain, right? That you get, I mean, happens all the time you do different things hurts a lot, but it’s very short. And you kind of forget about it quickly, versus kind of a, like a chronic pain, right. And those are really bad. I mean, you hear, I don’t have that, luckily. But I mean, you know, I had a bad back for three weeks once, it was really awful. And so that’s the difference. We had essentially peaked out on about the 20th of February 2020. And we bottomed out on the on the 23rd of March 2020. So basically a month, we dropped 35%, that’s the fastest 35% Drop in history. And it was unbelievable, you know, because basically, we were shutting down everything it was looking like the next great depression that could happen. It was really scary. And the Federal Reserve, the Treasury, and Congress just started pumping money out. And altogether, I think it was about $10 trillion came out to support the economy that was basically closed. And the recovery was quite quick. I don’t remember the exact month that we got back to the high again, it started establishing new highs, but it wasn’t very long, three, three to six months, someplace in there. And if you look at what’s happening now, right? It’s been five months of just and then we get a big bounce at the end of March, it looks good. And then China locks down and the Federal Reserve keeps hammering, and then okay, we get it.

And we’re in the middle of another bounce right now. And after a while, you’re like, Oh, my goodness, you know, is this really gonna turn into something or not? And so it’s just a, it’s an issue of time. And kind of, in this, unfortunately, this is a lot more like what happened in 2008, you know, which was this started in October of 2007. And ended in March of 2009. Right? So almost a year and a half, we had several nice recoveries, oh, looks like we’re getting out. And you know, and we kept coming down. And again, that was a recessionary environment. And in fact, that was a financial crisis, which is usually creates the biggest downturns. And that was the second biggest downturn, you know, in in the history, going back to 1900. Anyway, so, you know, that’s what, that’s why this feels more painful. It’s only down 17%. It’s down less than that now, because it’s recovered a bunch, but from kind of high to low, it got down almost 20 If you look at the very highest intraday to the very lowest intraday last Friday, you know, and that’s, that’s painful, but it’s more of the time that it’s taken. It’s more like chronic pain and sharp, short pain. So yeah, it’s something to be anxious about. But that’s the key, you gotta hang in there.


Easan Arulanantham:

Yeah. Because when you think about it, if you started to expand your kind of timeframe outside this, like five months, and we started going back to like, pre pandemic, to now, that’s a really good run. And if you told someone, you know, pre pandemic, they be at this point and of the market, I think they’d be very happy. Yeah, the only reason we’re kind of anchored to that high is why we’re kind of anxious about this lower.


Tom Vaughan:

Yeah, that’s something to think about not doing as a person, you know, picking the highest point you ever had in your accounts, and bemoaning where you are at, you’re just torturing yourself. You’re exactly right, take a three year look and say, Okay, over the last 36 months, what if I made you know, how do I feel about that? How have I performed versus the market saying that three year period, and it just puts it into more perspective, and you’re exactly right, if you went back in a time machine to three years ago, and you told this person, you are going to make X on your accounts over the next three years, they would have been very happy with that. Not knowing that, you know, hey, with a 35% drop in the stock market, you know, and the pandemic, and that we’re having this slow grinding, almost 20% stock market downturn. If you just told them those two, they’d be like, Wow, that sounds awful. But they still end up with a reasonable rate of return over that three year period. Right? You’re right. It is it’s, it’s one of those things that you know, just has to be put in perspective, don’t walk into the highest value you might eat will actually if you have a good quality portfolio, most likely get back to those highest values. But it could take a while, you know, I remember when the NASDAQ hit 5000 and then it got crushed in 2002 1099 2000. And people thought it would never get back there. I don’t know what is it 15,000. I mean, it did it took a while took five years or something to finally get back.

So you know, but if you’re really thinking only about that high point, you’re just adding to your chronic pain. And it’s a lot easier to look at the long term And then we talked about this on the last show, it’s even easier to really look at the MonteCarlo simulation inside your financial plan and see what is your probability of success for your retirement at these levels? Are they still pretty good or not? And a lot of times, they’re not that bad, because again, it’s looking at the rest of your life. And that’s the best way to look at it. So look three years back, and then look at MonteCarlo simulation for what it says for rest of your life. I bet you I bet you your pain drops quite a bit. Right. Yeah. And that’s, I think, that’s a big component of being a good investor is finding ways to drive your pain down. Because if your paint gets too high, you’ll probably sell out at the bottom or close enough to it. And you’ll end up with a return that you really really don’t like. So anyway, that’s that’s a good question.

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

By participating in any of these live streams, you agree that any questions submitted by you might be used by us in the future on this YouTube channel. We will not share your personal information.

If you have questions, please write to us at: asktom@talkmoneywithtom.com.

  • MoneyGuidePro®
  • Advent Software/Black Diamond Reporting
  • Riskalyze, Inc.
  • thinkpipes®
  • Right Capital
  • YCharts, Inc.