Highlights and my comments on Charlie Bilello's '7 Lessons From 2024'; 'Money doesn't buy happiness – it buys freedom'; I'm having the time of my life
1) Regular readers know how much I enjoy following Charlie Bilello...
He's the chief market strategist at wealth-management firm Creative Planning. And his always-insightful Week in Charts blog is one of my favorite sources for big-picture data.
I often include excerpts and charts from the blog here in my e-mails. And earlier this week, Bilello published his latest missive: 7 Lessons From 2024.
So, with the year coming to a close, I wanted to share highlights (adding my comments) from it – and share my own comments...
To be frank, it has been quite a remarkable year for stocks.
The S&P 500 Index's 29.2% total return (a 27.6% price return plus dividends of roughly 1.7%!) through yesterday's close is the best year-to-date return since 1997. In Bilello's post, he shares this cool graphic that puts the annual returns in context:
Bilello also notes that the S&P 500 has hit 57 all-time highs this year – the fifth most in history, as you can see in this table from his post:
Bilello included two interesting graphics that put this year into historical context...
The first groups the S&P 500's total annual return into buckets of 10% (you can see where 2024 stands so far in bold in the 20% to 30% bucket):
Isn't this a calming chart?
As you can see, the market is up the great majority of the time. And even when it's down, more than half the time it's down less than 10%.
Ah, but look at the bar chart Bilello shared next:
It's the exact same data... but it sure looks a lot more volatile and scary, doesn't it?
The lesson here is that stocks (at least as measured by the S&P 500) have done very well over time... but you need to have a long-term outlook, keep your eye on the horizon, and not panic and sell at the bottom or when you hear intense doom and gloom from the ever-present naysayers.
Bilello's next chart shows how the "strategists" (I use that term loosely) at all 20 major Wall Street firms failed to predict such a strong year for the S&P 500:
In fact, the index is 25% above the strategists' average forecast. The lesson is simple: ignore them.
I'll note that I was hugely bullish at the market low in late 2022... and even after stocks rallied strongly, I have remained consistently "constructive," urging investors who own good stocks or index funds to stay the course.
This is especially true when there has been market turmoil. For example, Bilello referenced the market panic back in the summer in his post:
On the morning of August 5, panic was in the air.
Japan's Nikkei 225 Index had just suffered its largest 2-day decline in history (-17.5%), even bigger than the October 1987 crash.
And take a look at the related chart he shared:
And as he continued:
Fear of the unwinding "carry trade" spilled over into the U.S. markets, and the Volatility Index ($VIX) spiked to over 65, its highest level since March 2020.
You can see this in the next chart he shared:
On the very next day on August 6, after analyzing the causes of the Japanese flash crash, this is what I wrote in my e-mail:
So after the recent turmoil, has my advice changed?
In a word, no.
The economic fundamentals haven't changed – and remain solid. Yes, the economy is slowing... but as I wrote a week ago, "keep in mind that this softness is coming after the economy was white-hot, which the Federal Reserve deliberately cooled by raising rates rapidly to bring down inflation."
And inflation remains muted. In the July 11 report for June, month-over-month prices declined 0.1% – the first monthly decline since May 2020. And the core price index, which excludes volatile prices of food and energy, increased 3.3% year over year – the lowest yearly increase since April 2021.
As I also said, the comparisons of the global financial crisis and the COVID-19 crash with the situation in August were "ridiculous."
Instead, I thought it was more like 1987. I also shared this Wall Street Journal article from the day before with more perspective: Is This 1987 All Over Again? What's Driving the Market Meltdown? Excerpt:
The S&P made 36% in the eight months to its August 1987 peak, similar to the 33% it rose in the eight months to the end of June this year. As in 1987, this year's gains came in spite of tight monetary policy and higher bond yields. Just like today, in 1987 investors were on edge and ready to sell to lock in the unexpected profit.
The losses are smaller so far, but lucrative trades have reversed, just as they did for the market as a whole in 1987.
And as I continued in my e-mail on August 6:
Needless to say, anytime in 1987 – even on the eve of the infamous Black Monday crash on October 19, when the Dow Jones Industrial Average fell 22.6% – would have been a great time to invest.
The S&P rose 16.6% in 1988, another 31.7% in 1989, and has kept on chugging, as you can see in this chart of the value of $100 invested on January 1, 1987 (I've circled the Black Monday crash, which is barely detectible):
What happened yesterday on is simply a reminder that stocks can be volatile.
Sure enough, history once again repeated itself – as you can see in this next chart that Bilello shared, the S&P 500 has soared since the panic lows of August 5:
Bilello concluded his post with some wise words:
The most important lesson for investors each and every year has nothing to do with investing. It has everything to do with time and how you spend it.
He also shared a popular adage: "Money doesn't buy happiness – it buys freedom." And as he continued:
The main benefit of building wealth is that it gives you the freedom to spend your time in ways that bring the most meaning to your life. Many who have that freedom don't use it and fewer still use it wisely.
I couldn't agree more. And here are two recent examples from my own life....
Until a month ago, the wealth I've been fortunate enough to accumulate (along with having grown-up daughters and the world's most patient wife, Susan!) allowed me to do what I love most in my free time: travel, spend time with my family and friends, meet new people, explore the world, keep learning, and have amazing adventures.
And then, a month ago, I saw an opportunity to try to change for the better the city that I've lived in and come to love over the past 31 years by running for mayor (if you missed it, I announced this decision to readers in my November 27 e-mail).
Thanks to the position I've built myself up to over all these years, I was fortunate enough to be able to take the leap.
What a wild ride it has all been over the years. And now, I've never been so exhausted... but also never so energized.
Put simply, I'm having the time of my life.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.