The S&P’s current drop of 30+% is among the steepest and quickest in market history. The other two times in U.S. history that eclipsed the rapidity of this current decline resulted in markedly different outcomes. The 1987 Stock Market Crash, which was the result of selling triggered by a failure in portfolio insurance, caused a decline of 33.8% in the S&P 500 index. The other selloff that went further, faster? The Great Depression, which would eventually lead to losses on 86.1% over a total of 34 months of seemingly unabated selling.
Why do I bring both these scenarios up? Because anything is possible, but I do not believe this is anything like 1929, when the American government led by President Herbert Hoover believed in letting the market figure itself out. Although the stock market was at much more elevated valuations then I would prefer to see two months ago, our government is – for the first time in a long time – working together and proactively invoking every possible economic tool at their disposal to keep business in America running. When you see Representative Ilhan Omar praise President Trump, you realize that we are all in this together.
This is probably the fastest in U.S. history that we are aware that we are in a recession (something that is occasionally unknowable until after the country emerges from recession). Forcing quarantine has the side-effect of knowing you have ground the economy to a halt to save lives. I think our knowledge of our current situation as well as the many successes/errors we’ve made in our history, will help us rebound faster.
I want to pivot and tell a story about the life of my grandfather, Houston Rehrig (yes, that’s where I get my awesome first name – though my grandfather went by “Bud” Rehrig). My grandfather was born in 1908, and he lived an extraordinary life (in addition to being my hero). His family lived in Los Angeles during the Great Spanish Flu Pandemic of 1918, which killed his brother Bobby.
My grandfather passed away in 2006, but to the day he died, he hated the smell of onions and would not eat them because his house stunk from onions during the Spanish Flu (onions were erroneously thought to potentially ward off the flu then, so my great-grandparents put them everywhere in vain). The memory of my grandfather silently pulling the onions off a hamburger at McDonalds because they had errantly included them in his order will stick with me forever. I never saw my grandfather get emotional except when talking to me about his brother, Bobby. Some types of pain are never dulled even after 90 years.
A few years after Bobby’s death, my grandfather went to play quarterback for Pop Warner at Stanford. When the famous coach promised him the starting position in 1930, my grandfather had to graciously decline. Beset by The Great Depression, my great-grandfather was having tremendous difficulty keeping the family business afloat. My grandfather, who had been the team backup for four years, turned down his dream to start a PAC10 game, graduated and went home to Los Angeles to help turn the family fortunes around.
It took much toil and sweat, but the family company, which made milk crates, finally returned to profitability. Students of history will correctly guess that this coincided with World War II. Bud Rehrig, with his mechanical engineering degree from Stanford, was commissioned by the Army Air Corps to help build planes. He left the family business and did his part as a member of The Greatest Generation.
When he returned, Bud Rehrig built the family business into a behemoth. His engineering abilities led to the creation of the nation’s first plastic shopping cart and the plastic crates that Coke and Pepsi use for their two liter bottles. I believe that when you are faced with unimaginable sickness, financial hardship and war, you emerge a much stronger person better able to seize life’s opportunities. Growing up, none of this mattered to me of course; what I knew was that he was the kindest, most loving grandparent I could have asked for. It was only when I grew up that I realized the tremendous sacrifices and accomplishments my grandfather had made – even though he humbly never talked about any of them.
We have a history of market panics from time to time; my grandfather saw most of them. He just missed the housing crisis (though a Depression survivor, he was deeply troubled by the debt he saw incurred by many Americans and our banks), and he’s not here for the current pandemic. However, in his lifetime, he saw several flu pandemics that claimed millions of lives – including his brother’s. He lived through a Great Depression, many recessions, numerous wars, and just about every other disaster you could think of.
It’s easy for people to say “you have to be greedy when others are fearful,” and much harder to put in practice as people are finding out right now. I believe hindsight will demonstrate that this is a great moment to buy the S&P 500. It doesn’t matter to me if I am early – I am buying. This too shall pass, and the overall trajectory of America will continue higher just like it did over the 98 years of my grandfather’s life.