The Historic Market Crash

“It has been a really tough weekend,” said Harold Camping as he answered his door to reporters on a Sunday afternoon back in May 2011.

Given the circumstances, it could have been a lot tougher. The 89-year-old Christian fundamentalist radio preacher had been telling anyone who would listen that the rapture would occur a day earlier at 6pm Saturday. Massive earthquakes would strike, believers would ascend to heaven while everyone else would be left to wander a godforsaken hellhole. After enduring five months of torment, the detritus left behind would see the world explode into a fireball by late October.

It didn’t take long for Camping to straighten his spine and revise his call. After finding some errors in his calculations, Camping suggested the May call was premature and October 2011 was “probably” the right forecast for both the rapture and the end of the world. Thankfully, Harold missed on that call also.

Camping started his forecasts in the late 1980’s. Back then, 1994 was the initial target for his prophecy of doom. When 1994 didn’t come to pass, he was forced to admit he’d found some calculation problems which explained the miss. After forgetting about the idea for a while, in 2005 Camping came up with the 2011 target for the end of days. The genius of such a long lead left plenty of time to sell some books and build a following for the apocalypse. Camping had a radio show where he spruiked to the gullible and garnered some media attention.

You might wonder why the media would give any space to Camping, but they did. He spent up a storm trying to promote his forecast. Many of his acolytes followed his lead by buying billboard advertising and handing out pamphlets around the world. It was this strange circus of doom that likely caught the media’s attention as an oddity.

Thankfully, the media didn’t give Camping the most balanced coverage. Any perceptive reader could sense there was an undercurrent of ridicule in most stories and there was always a prominent reminder of his previous failed predictions. When Camping passed away in December 2013 the failed predictions featured prominently in his obituaries, and with good reason, as illustrated by New Jersey pastor J.A. Jones’ conversation with The Philadelphia Inquirer in 2011.

Many of his parishioners have heard Camping’s warnings, Jones said, and asked him anxiously if the May 21 date is true. “I tell them, ‘No, but if you’re so concerned, why don’t you deed us your house and car?’ and then they laugh. … Everyone who ever made those predictions got egg on their faces,” Jones said.

Some others, without access to such a sober second opinion, took Camping seriously and were left dealing with the consequences. Mostly it was frustration and some wounded pride among his spooked acolytes. Eighty of Camping’s South African believers booked out a hotel for an end of the world shindig, all with the expectation they wouldn’t be around to pay the bill! Not so funny were some tragic outcomes. A suicide, an accidental drowning, and attempted murders were all prompted by panic among believers of Camping’s forecast.

While Harold Camping was well removed from the investment space, he’s someone we never fail to think of at least a couple of times a year because of forecasts like this:

Billionaire investor says historic sharemarket crash is ‘nearly certain’

Jeremy Grantham of asset manager GMO published his historic crash forecast just as markets were swooning in January. It quickly caught the attention of many in the media, who had little problem acting as “his master’s voice”.

Is Jeremy Grantham a dangerous kook like Harold Camping? No. Grantham is interesting, he has views that are worth considering, he has 50 years of experience behind him, and he has been right in the past. He’s also been catastrophic and alarming on a regular basis over the past decade, without success. Anytime you hear someone predicting a crash, put their name into google and include a year, in this instance maybe 2010, and see what shows up.

Anyone who cares to look can see this has been going on for a while. The galling thing is it’s not noted when the mainstream media report on Grantham’s forecasts. Previous misses are excluded, and the new forecast is put up in lights to spook investors without any of the baggage that this has been occurring almost annually. However, we don’t see this as a Jeremy Grantham issue. He’s very much entitled to his views. Grantham has been writing on GMO’s website on a regular basis over an extended period. It’s only when he has a disaster forecast that the media chooses to pay it attention, and then amplify it further.

This is not uncommon. Crash forecasts are treated with the utmost seriousness by the media and the forecaster’s track record is selectively referenced by highlighting the wins and excluding the many misses to make the story seem more prescient. In contrast, if you’re predicting the end of the world there’s immediate scepticism, an undercurrent of ridicule and prominent reminders of prior forecasts that didn’t pan out, as the Harold Camping example shows.

The issue with news about “nearly certain” crashes and selective reporting of track records is investors panic when hearing this stuff. We’ve had questions about it. All we can do is play the role of Pastor Jones. Offer a sober second opinion and some perspective beyond the one offered up. Most crash forecasts miss because the market rarely crashes. No one can time markets with any real and consistent success. Every decision prompts another decision, which sooner or later results in a costly mistake. We’ve always found doing nothing is the best course of action. Our most successful clients are the ones who’ve sat dispassionately in their seats for decades.

What’s notable about this story is what we didn’t hear and what we weren’t asked about. No one mentioned tech companies such as Microsoft, Apple, and Google are currently smashing earning expectations, so this conflicts with the idea of a massive market decline when these companies help drive the market. No one asked: “should we buy emerging markets, resources, and value stocks?” Because that’s also where Grantham said was the best place to be positioned, he didn’t say sell everything and sit in cash, but that’s not a great headline. In contrast “historic sharemarket crash” gets a chest tightening reaction.

We understand the oversight and the fear, but we run diversified portfolios spanning asset classes and sub asset classes. A core component of those portfolios is exposure to those big winners in the US and value stocks both in Australia and globally. There is also a small exposure to emerging markets. The portfolios are constructed on an all-weather basis because returns are never consistent. Today’s winner can be tomorrow’s loser and vice versa.

March 2020 seems like a long time ago. The Covid panic was quickly swept away by fiscal and monetary largesse. It wasn’t normal and now has to come to an end. Interestingly, sharemarkets see a double-digit dip almost every year. Last year markets moved upward with hardly an incident, which is an exception, not the rule. Market volatility is normal, last year wasn’t normal and many investors quickly grew accustomed to that investment Disneyland. Recent weeks offered a reality check. We can’t put too fine a point on it, but we all need to get used to volatility again.

Your decisions are relative to your goals.

If you’re in your 40’s and your retirement is two decades away, just keep doing what you’re doing. There will be plenty more volatility and plenty of corrections ahead in the next twenty years. To get where you’re going, you’ll have to put up with them.
If you’re retired, in general, your portfolio is likely constructed and managed in a way to ensure short term spending is covered with cash and short-term fixed interest. Don’t fight your adviser if they want to rebalance. Profits should be harvested after a good run because that’s tomorrow’s spending.

Aside from the incendiary media coverage, experienced investors are worth listening to, in their totality, but never be overawed by the terms “billionaire” or “legend”. Keep perspective, no matter how persuasive someone seems, history will show they don’t always get it right. Someone may be able speak at length and seem convincing because they’ve seen everything.

But just like Harold Camping, there’s still one thing they haven’t seen: the future.