The History (And Truth) Of Stock Market Crashes

Other than sheer panic and the feeling that you’re being swept up by forces beyond your control, what does the recent stock market dive have in common with sailing across the Southern Ocean to Antarctica?

For starters, insignificance.

From New Zealand to the Antarctica Peninsula as the albatross flies you’re looking at over 2000 miles of open, nasty, uninterrupted ocean. If you make the run straight across along the 50th parallel (sailors call this the Furious 50s) you can turn left midway and you’ll hit Tahiti about three weeks later. There are few lonelier places on the planet to get in touch with what it truly means to be insignificant.

If you’re not Warren Buffet or George Soros, the Southern Ocean is a lot like today’s stock market as an individual investor: you’re a tiny 44’ steel sailboat 1000 miles from shore at the whim of winds and waves far beyond your control. So how do you restore a sense of confidence that something—anything—can be done to protect yourself from being a victim of circumstance? In sailing terms, what happened on Black Monday to average investors is called a ‘knock down’—when a 40’ wave rolls your sailboat over sideways and leaves you standing on the ceiling hoping she rights herself before you fill up with seawater.

If you’re smart you won’t take our advice so we asked Augustine ‘Gus’ Repetto, managing principal of Philadelphia-based Locust Capital Management, which has over $300 million dollars under management, for his thoughts on the current state of the stock market.

“As trusted financial advisors our goal is to construct a plan for our clients depending on their financial needs and overall risk tolerance,” says Repetto. “We’re not market timers, but rather asset allocators and risk managers. This essentially takes the short-term variable out of the equation.”

Sailing translation: Stay the course and heed the experts’ advice (not the ones looking to hike up their TV ratings). You will never be significant to the stock market but you will always be relevant to those looking after you.

Second, inevitability.

There’s a point in the middle of the Southern Ocean between New Zealand and Antarctica aptly called “No Man’s Land”. It’s the furthest place on the planet that you can get from civilization. Literally. You’re hundreds of miles outside of any helicopter rescue range, days away from the closest shipping lane, and all a military jet can do is a fly over at 10,000 feet. If you sustain any moderately life-threatening injury here the odds are almost 100% that you’ll die.

When we sailed through ‘No Man’s Land’ the barometric charts weren’t favorable—slow moving, knotty, inwardly-turning isobars that meant 60 mph winds and 40’ wave sets for days on end. And you can’t outrun a storm in a sailboat. That was the bad news. The good news is that we knew it was coming.

For those who have been (or have people) paying attention, the current stock market correction hit like a slow-moving hurricane you could see approaching from a thousand miles away. Bubbles abound everywhere. Instability rules in the Middle East. China’s currency is all over the place. To say nothing of Greece’s consistent drag on the Eurozone recovery. Prepared people were prepared.

If you listen to the media you’d think the recent stock crash hit like an earthquake blindsiding millions. Markets, like nature, are volatile and uncertain. Their patterns, however, are predictable.

“The media is in the business of selling viewership, and unfortunately for the average investor trying to pay attention when the markets get volatile, this brings on the extremists who drive up the ratings,” counsels Repetto. “Bottom line we are in a correction phase that occurs from time to time and we knew it was coming. We had one in August 2011 and another in September 2014. This is not a time to panic or sell. It will create opportunities for the long-term investor. Like every one before it, this market storm too will pass.”

Third, pain.

When that storm rolled through ‘No Man’s Land’ none of us slept for three days. We didn’t eat because we couldn’t cook. Other than 72 hours of insufferable four-hour rotating watches in the freezing sideways rain hoping that I’d live to the other side the only thing I recall vividly is the actual knock-down itself. If you sail across oceans long enough it’s inevitably going to happen to you as well. And when it does, as you’re standing on the roof of your boat, upside-down, in the middle of the ocean, hoping it rights itself, you’ll wonder why you thought it was a good idea to sail across an ocean in the first place.

Some people are reacting to the recent stock market crash as if it’s the first time they’ve felt financial pain in their lifetimes. Is the Great Recession and your 101k plan really a distant memory? Aren’t stock market plunges historic?

Sadly yes. Past pain is real, if conveniently forgettable. And if you stay the course in your long-term financial plan you’ll be standing on the roof of your retirement again at some point in the future.

“I think it is natural for people to forget about bad events even when they recently occurred,” says Repetto. “Price corrections, such as this, are not new by any means. It is important not to panic and believe in your investment plan. You should seek advice from a designated professional if you feel your plan is not in line with your risk tolerance.”

Sailing translation: Don’t confuse pain for panic. Your life may depend on it—as well as your retirement.

Fourth, relief.

When we docked forty-four days and 2000 miles later in Ushuaia, Argentina after we departed from Christchurch, New Zealand, there was no greeting party, and no one to celebrate with other than ourselves. It was the most anti-climactic event of my life—and the greatest sense of relief I will ever know. When you survive the storm surviving is often the best reward of all.

Earlier today, one financial television commentator admonished us that if we don’t stock up on bottled water, canned goods, and batteries immediately we were at risk of being swept up by the civil disobedience in the streets to follow. Such alarmism stokes false fear, which in turn makes the markets even more jittery.

Welcome to the adventure of sensible long-term investing in a volatile global market. Prudence and foresight don’t make for sizzling headlines but there is no feeling more satisfying than the relief that comes when you’ve stuck to the plan and arrived at your final destination despite all of the storms life—and the market—can throw at you.

Given the recent ups and downs in the stock market, Repetto has some sound advice for the next generation that’s just starting to invest. “I have Millennials working for us at Locust Capital,” he says, “And I can tell you that after witnessing a few market cycles, they are learning quickly that investing does not come easy. Investing is not a sprint but rather a marathon. Look at your investment plan, diversification, and the long-term. Focusing on these three principles is critical to achieve long-term investment success.”

Sailing translation: That means you’ll make more money, retire earlier, and be port hopping around the Caribbean sooner if you maintain course and speed and don’t panic.

On the subject of risk management, Mr. Repetto has no intention to sail to Antarctica any time soon unless it’s on a cruise ship. Sounds like a conservative plan to us.

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