The wages of fear

As the US slapped a 104% tariff on China, as that country retaliated with an 84% hit at American goods, as Canada launched a 25% import car duty, as Europe whacked $400 billion worth of Yankee exports, as then global trading system was shredded, as the S&P entered a trade war bear market and as President Trump at a black-tie Mar-a-Lago dinner boasted “so many countries now want to come and kiss our ass,” Barb wrote this to me:

Yesterday you said, “The disruption to the global trading environment and world net worth may be decades reversing. You might not even live that long. He probably won’t.” Then why not sell investments that have been profitable? Rather than watch them tank? Especially if retirement is not so long away… before they have a chance to “reverse”.

Has what Trump is doing been seen before?

No, Barbara, this is new. But also the same.

Trump is rogue, capricious and dangerous. The trade war is meritless, destructive and pointless. There is no precedent for the world’s largest, most prosperous nation suddenly turning on its allies, burning its reputation and committing economic suicide.

But then again, there was no modern precedent for the global pandemic of 2020 and the fallout from that. Or the 2008 real estate crisis and collapse of major Wall Street banks. Ditto for the massive terrorist attack of Nine Eleven in 2001, or the dot-com market massacre of the millennium.

Many times in past decades investors have looked at losses, feared everything was going to zero and panicked. As the major American stock market drifts into bear market territory today, it’s happening again. Here was the CNN investor sentiment gauge this morning. It doesn’t get much worse.

A quick story of a woman previously referenced on this blog (I knew her personally). Her husband died of cancer at 72, leaving his 66-year-old spouse with a clutch of insufficient GICs, scant income and a house on which she couldn’t even pay the property taxes. She sold and put the few hundred thousand received with a financial advisor who set up a monthly paycheque – enough to handle the rent on a nice condo, keep her car and maintain her dignity.

The credit crisis bear market arrived. Her income continued but her funds lost close to half their value. She called me, terrified. Don’t bail, I said. Big mistake. But she did. The remaining funds went into a high-interest bank account, from which she drew living costs. In four years it was empty. At 71 she declared bankruptcy in order to walk away from the massive Visa bill she’d run up after the savings vanished. She died penniless, leaving nothing to her family. If she’d never been driven into cash by headlines and emotion, her money would have easily outlived her.

Bear markets end. Always. You just need to be patient. On average, they last 289 days from peak to trough. In contrast, rising (or bull) markets have an average lifespan of 6.6 years. On average bear markets drop stock values by 35%. On average, bull markets increase equity values by 111%.

A bear happens when a market drops 20% from its peak, which is just taking place with the S&P 500 after its recent record high in mid-February (when Trump still seemed semi-sentient). Usually bear markets are accompanied by, or signal, an economic downturn – which is currently in the forecast. They have also always proven to be buying opportunities for confident investors with cash to deploy.

Since 1928 the S&P has had about an equal number of bears and bulls (around 30), but the bulls were far larger and lasted much longer. Also bear markets have been less frequent since WW2. The average length of time between the bears has been three and a half years – so they’re certainly not uncommon. In fact, most people will live through about 14 of them during their adult years.

So, Barbara, the cause of this downturn may be unique, but the event itself is routine. Your assets are not going to zero. The value of the things you own will restore. All you have to do it wait. Selling now would mean taking paper losses and making them real, while posing a giant question: when do you buy back in?

If you wait for markets to ‘get better’ and prices to rise into a comfort zone again, you missed the recovery after sustaining a needless loss. Net worth falls, possibly forever. All because of emotion. In fact, 42% of the stock market’s strongest, most positive days in the last few decades have occurred during a bear market. Another third happened before there was a clear signal the bulls had returned. Those sitting on the sidelines, moaning and shaking, missed it all. Folks who stayed invested did not.

Sell if you want, Barb. It’s your money, your life and your mental health.

But it is clear Trump will fail, backslide or wiggle out of this massive mistake. It’s only a matter of time. Markets will respond. Prices rise. Patience will be rewarded. So, turn off the damn cable news and ignore your brokerage account.

It’s not different this time.

About the picture: “Thank you for your blog!” writes Brenda. “I have been reading it for a few years now. Harley has graced your page in the past, this time however he is awake and enjoyed this winter day at the beach. He has fun running around and playing in the snow.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.

Source: https://www.greaterfool.ca/2025/04/09/the-wages-of-fear-2/