The Wisdom of Joker

What does Heath Ledger's Joker have to do with investing? Well, I'm glad you asked! In the world of investing, one of the biggest obstacles I have coaching people is helping them get their arms around risk. While it's true the stock market has averaged 9% per year over the last 150+ years, it's also true it frequently looks like a scary rollercoaster. It can be a mess. 

Here's a fun fact. Though we typically view the stock market through the lens of "8-10% per year," the stock market has only produced an outcome in that range three times out of the last 153 years (1912, 1916, and 1993)! In other words, the month-to-month and year-to-year results can vary widely......shockingly so. In fact, it's finished everywhere between -40% and +53%. Again, it's a mess. 

Just this century alone (which spans only 24 years), we've experienced four stock market crashes:

• -46% with a combination of the tech bubble bursting and 9/11

• -54% during the Great Financial Crisis

• -32% (in just five weeks!) when COVID hit us

• -25% in 2022

Once again, it's a mess!

Let's go back to Joker. In The Dark Knight (one of my all-time favorite movies), Joker is in Harvey Dent's hospital room, spouting off crazy. In the middle of this rant, he utters a quote that lives rent-free in my head: "Nobody panics when things go according to plan. Even if the plan is horrifying."

While Joker meant it in a dark and nefarious way, I think there are a lot of parallels with investing. As investors, we need to know bad things will happen. It's part of the plan. The stock market crashes because the stock market crashes. That's just how it works. And if the stock market crashing is part of the plan, and we know it's part of the plan, we don't need to panic. Yes, even when the plan is horrifying. 

Four stock market crashes in just 24 years does indeed sound horrifying....and risky. If you had patiently lived according to the (horrifying) plan and endured whatever the stock market threw at you, you would have lost nearly half your money, just over half your money, a third of your money, and a quarter of your money. Brutal, eh? But here's the fun part. Through all that, you would have received a 6.9% annual return for those 24 years. Put another way, a $1,000 investment made on 1/1/2000 (hello Y2K!) would be worth approximately $5,000 today. That's a 5x multiple on your original investment. Not too shabby for enduring four stock market crashes in the middle of it. 

The stock market will crash. It always does. That's part of the plan. And if you know it's part of the plan, there's no need to panic. In fact, there's not even a need to log into your account or dig into account statements. Let the market do its thing while you live a meaningful life, and then check back in a few decades.