most widely followed popular psychologists, Dr. Phil reaches millions of people and can influence how they think about important issues. Unfortunately, I found the financial advice on his “Financial 911” program highly disappointing.
What started as “15 Days to Slow the Spread” turned into a multi-months-long — and in some portions of the country, a year-long plus — shutdown, which devastated many businesses that relied upon in-person activity. Especially hard hit were smaller businesses like restaurants, retail stores, and travel-related companies that were not set up to do business digitally.
Business activity fell greatly in March 2020 when the shutdowns began and continued into the spring months. Stock prices fell at an unprecedented rate. The Dow Jones Industrial Average suffered a 38 percent drop over a six-week period after peaking (at 29,568) in early February 2020 and bottoming out (at 18,213) in late March 2020.
The economic carnage happened quickly as well. After reaching a more than 50-year low at 3.5 percent in February 2020, the unemployment rate spiked to 14.8 percent just two months later. And while millions of laid-off workers were able to return to work within a few months, more continued to be laid off as the pain inflicted by the shutdowns continued and deepened in states with long shutdowns and more restrictions.
Handling one’s emotions is always a challenge during a catastrophic event, and the pandemic certainly tested large numbers of people in that regard. In addition to the perceived danger people felt from the possibility of catching the virus and possibly dying, the 24/7 media coverage focused on every last thing that could go or was going wrong. For sure, much of the media made it appear (intentionally or not) that things were worse and more dire than they really were.
Many folks expressed surprise at the stock market quickly bouncing back in the spring and summer of 2020 despite the large number of people still out of work and the many businesses hurting. This episode, like many others, highlighted that the financial markets are always forward-looking. So, while many folks were still out of work and the virus was still spreading and killing, the economy was on the mend and expected to continue to improve. The development of therapeutics to treat the virus and the rapid development and approval of effective vaccines led stocks to hit new all-time highs in late 2020, less than a year after the shutdowns began.
Hopefully, time and effort will be taken to examine what measures were and were not effective so that in a future pandemic, we won’t make as many mistakes.
Mistakes Made … and Lessons to Carry With You
We’ve been on a whirlwind tour of modern American economic and financial market history. Knowing what problems have occurred in the past and how things turned out after the fact can better help you to wisely navigate future similar problems and turmoil.
Emotionally, of course, it’s somewhat easy to look back in hindsight at all of the problematic events we’ve reviewed in this chapter. So, let’s recognize that we’re all human and have emotions that can get the best of us and cause us to do the wrong things at the wrong times (such as panic and sell stocks after a major decline) when we’re in the midst of a storm.
“Police went to Whole Foods where managers told them an elderly customer came in a few days earlier, hysterical after she realized she had mistakenly returned the box of crackers with her life savings inside. Frightened by the government takeover of several banks, the Lake Forest woman, whose identity was not released, had decided to take her money out of the bank and hide it in her home.”
For sure, plenty of folks were worried about the safety of their money with the stock and real estate markets getting pummeled during the 2008 financial crisis. But folks worrying about the safety of keeping their money in the bank reflected irrational fear. If the FDIC government system backing up our banking system failed to protect bank account depositors, holding onto paper money, also issued by the U.S. federal government, wouldn’t do you any good either.
Most folks can see the silliness and danger of keeping cash in a cracker box in your home. Cash kept in your home could be stolen, forgotten, or destroyed in a fire. Hearing stories like this can lull us into thinking that well, we would never do something so ill advised, yet many people make decisions and take actions that are nearly certain to lead to suboptimal or even terrible outcomes.
Consider some other detrimental financial moves I have seen people make during economic and financial market calamities:
Selling stocks at greatly reduced/depressed prices: When stocks are falling in value fast and the daily news is filled with gloomy headlines about job losses and other economic problems, I’ve seen plenty of otherwise intelligent folks dump their stocks and buy bonds or simply sit on cash in a money market or bank account. Typically, during such episodes, bonds are in high demand (and thus at elevated prices) and offering reduced yields. Now, don’t get me wrong — I understand the emotions behind this. No one enjoys feeling like they’re going down with a sinking ship or part of the losing team. But selling stocks low and buying bonds high is the opposite of how smart investors make money. Otherwise, sound investments that are beaten down in price offer value. That’s why smart long-term investors buy, not sell, stocks after they’ve fallen, and you should as well.
Following supposed prognosticators who claim to have predicted all these bad things that have recently happened: Fibbing and misrepresentation are rampant on social media platforms. And the mainstream media should really do a much better job vetting people they are giving airtime to. Sure, sometimes a pundit gets something right in the short term, but what about their longer-term track record and how accurate or not that was?
Heeding misinformation and uninformed people on social media platforms and blogs: For example, in response to a 2008 news report about housing prices dropping significantly from the prior year, consider this online posting, “Even if there were mortgages to be had, people have learned a valuable lesson from this housing bubble. No one in their right mind is buying now unless they’re looking at at least a 50 percent discount … from today’s prices!” If you were already stressed about challenging economic times, reading such gibberish would just make you more anxious. The reality was that there were plenty of mortgages being done then, and real estate prices weren’t going to (and didn’t) fall 50 percent from those depressed levels.
Immersing yourself in excessive and negative short-term news: When a crisis is unfolding, of course you’re going to want to keep up with what’s happening. The problem, however, comes from the fact that news (and opinions) come at us 24/7 now and so much of it is geared toward sensationalism and raising your anxieties to keep you tuned in. The “news” almost always focuses on the very short term and fails to provide a long-term perspective. The more you consume, the more stressed and depressed you are likely to become and the more likely you are to make emotionally based moves that are detrimental to your long-term interests.
Listening to politicians. Even when there isn’t a crisis or major economic problem, many politicians make things sound dire, especially when the other party is in power/control or we’re coming out of an event for which they blame the other side. In the fall of 2011, more than two years into the recovery from the severe recession/financial crisis of 2008, President Obama said in a broadcast White House roundtable discussion with journalists, “Obviously we’re going through the worst financial crisis and recession since the Great Depression.” I had to do a double take to make sure that this was not recorded back in 2009 early in the president’s first year in office! While the economic environment in the United States in late 2011 was far from strong and robust, we had been in recovery and enjoying modest economic growth the prior two years. Millions of jobs had come back, and corporate profits and stock prices were bouncing back. Also, the recessions the United States suffered in the mid-1970s and early