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Investment Insights, Inc.

This Time Really Is Different

I am very fond of old sayings because they represent concepts that have stood the test of time.  In the investment world, it has long been said that the four most dangerous words in the English language are “This time is different”.

This saying became especially popular in the early part of this century.  In the late 1990’s there was an idea going around that recessions were a thing of the past.  The idea was that advancing technology combined with just in time inventory practices meant that the kind of recessions we had in the past when over production led to companies having excess inventories and subsequently slowing production as they sold down the excess inventory, were a thing of the past.  This was a reasonable idea that led to unreasonable stock market prices.  A reasonable idea that was wrong.  It was wrong because excess inventories are not the only cause of recessions, and it was even wrong about excess inventories.  They do sometimes build up. 

But the idea that this time was different, that there might never be another recession, reinforced by year after year of economic growth, led to prices for stocks that have never been seen again.
OK, maybe you just did a double take.  I just said that in 1999 and 2000 we had record high prices for stocks that have never been seen again.  Of course I know that today’s index prices, and the prices for most stocks are much higher than they were in 1999 and 2000.  But that’s only if you don’t consider what those prices represent.  The price of a share of stock is related to the value of the company’s future earnings potential.  So if you anticipate a company earning $1 per share next year, and you agree to buy it for $10 a share, then you are paying 10 times forward earnings expectations.
Before the recent sharp decline in stock price, the S&P500 index was trading at 19 times next year’s forecast earnings.  The price, at over 3300, was a record high price for the S&P500, but only if you ignore the forward price/earnings ratio.  Remember, that was 19 and that was far from a record.  Back in 1999 we reached 40 times earnings!

That is the danger of believing that this time is different.  It can result in false confidence based on unrealistic assumptions.

So yes, “This time is different” are four very dangerous words.  But they also aren’t wrong.  The only constant is change, right?
This time we have a recession and stock market crash for reasons that we have not seen in over 100 years.  And 100 years ago it was all very different so we don’t have much to go on when we look at history to try to figure out what to expect now.
In 1918 there were no electronic computers.  No computer trading.  No internet and instant spreading of information across the globe.  No TV news, no social networks.
There were no antibiotics and no vaccination was developed for that particular flu at that time. 

There was a massive war taking place.
In short, nearly everything was different.  Yes, there are things to be learned from 1918, but not as much as we’d like.
And there is very little in modern post WWII economic history of any help.  No one has lived through a pandemic before.  No one has lived through forcibly closing an economy before.  And not just an economy, the whole world’s economy.

So yeah, this time really is different.
The 2008/09 financial crisis was truly terrifying because we didn’t know how bad it would be and whether it would end.  Worldwide depression on the scale of the 1930’s was a very real possibility.
This pandemic is terrifying for health reasons.  One way of dealing with it is to put the world on prolonged holiday.  But we know that in a worst case scenario, like 1918, we can and likely will develop herd immunity to it, and in a best case scenario we will develop and vaccination to create that immunity even faster.  We know that this will pass, and the good times can come back again and we have some ideas about when.
We don’t yet know how badly the shutdown will hurt, and how long it will take to restart but we know that everything points to those things happening, perhaps as early as next year.
So as terrifying as all this is, because we envision an end, it’s not like 2008/09.
And so, this time really is different.
Please keep your distance and stay safe.  I hope you all make it through this with your health and your family’s health.

Hal Masover is a Chartered Rerement Planning Counselor and a registered representave. His ?rm, Investment Insights, Inc is at 508 N 2nd Street, Suite 203, Fair?eld, IA 52556. Securies o?ered through, Cambridge Investment Research, Inc, a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representave, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Investment Insights, Inc & Cambridge are not a?liated. Comments and quesons can be sent to These are the opinions of Hal Masover and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal. Past performance is no guarantee of future results.

Indices mentioned are unmanaged and cannot be invested in directly.

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