Lessons in Perseverance from the Roan Highlands

Investors inherently seek profit; it's a universal truth that ascending figures are vastly preferred over descending ones—except, perhaps, in the realm of hiking, according to my children. During our recent journey across the Roan Highlands on the border of Tennessee and North Carolina, navigating a portion of the Appalachian Trail (“no children, not everyone goes to the beach for spring break and why do you say that is normal?”), my kids argued fervently that descending the mountain was more enjoyable than the ascent. Despite my years of experience in hiking and running, which have firmly rooted my preference for climbing, they remained unconvinced.

Ascending is a testament to muscle strength and perseverance. It's less taxing on the skeletal system, and the more one engages in uphill hikes, the stronger one becomes. Descending, while still requiring muscular effort, predominantly poses an impact challenge that can strain the skeleton, often resulting in injuries to the knees, hips, and other areas. Given a choice, I am inclined towards the uphill challenge. This preference does hint at a touch of masochism, but the true essence of hiking lies in its variety, mirroring the experience of trail running as opposed to the monotony of a flat road.

This brings me to the parallel with investing. Much like my personal preference for the ascent in hiking, investors generally yearn for the market to continuously climb. It's the uptrend that gathers the masses, driven by the allure of profit. The descent, albeit necessary, is seldom welcomed with open arms. My children, with their penchant for downhill hikes, may not fully grasp this concept within the context of the stock market—yet. However, a healthy market, much like a rewarding hiking expedition, thrives on diversity; it moves up, down, and sideways. During our recent hike, my daughter remarked upon reaching what she thought was the summit, "Just when I think we've reached the top, there's more to climb." That observation encapsulates the essence of today’s market dynamics and past market experience as well; the pinnacle is often beyond our immediate view, a matter of perspective.

Summarizing a recent article[i] from January when the S&P 500 first broke out to a new high in this cycle, now two months behind us:

Since 1950, the S&P 500 has navigated through 11 bear markets, each characterized by a decline of 20% or more from the market's peak. These downturns have varied greatly in duration, from a brief 33-day period at the onset of the coronavirus pandemic to a prolonged nearly 2.5-year slump following the dot-com bubble's burst.

Interestingly, the subsequent bull markets that follow these bearish downturns—marked from the moment a post-bear market all-time high is achieved—also exhibit significant variability in their lifespans. For instance, there were two occasions, one in 1980 and another in 2007, when the market’s ascent from its new peak lasted merely four months. The 1980 instance followed a recovery from the oil crisis of the mid-1970s, only to succumb to the 'Volcker recession' induced by aggressive interest rate hikes aimed at curbing inflation. Similarly, in 2007, the recovery from the dot-com bust faced a swift end as it collided with the onset of the global financial crisis.

Conversely, the period marking the longest interval between a fresh all-time high and the subsequent peak unfolded between the recovery from Black Monday in July 1989 and the climax of the dot-com boom in March 2000, spanning nearly 11 years. This period encapsulates the resilience and potential for long-term growth in the wake of recovery.

On average, since 1950, the span from achieving a new all-time high to reaching the next market peak has lasted approximately 3.3 years, across the 10 instances this cycle has occurred.

This average reflects the nuanced and often unpredictable nature of financial markets, underscoring the importance of perspective and perseverance—qualities as vital on the trails of the Roan Highlands as they are in the realm of investing. I know my kids begged for less new peaks, crying out peak plenty. In the market the callouts are the same, peak, peak, peak, but the time to the top may stretch a lot longer than one is inclined to think (pun intended)

Moreover, while reaching the summit is clear-cut in hiking, it is ambiguous in the financial markets. But descending, contrary to initial instincts, can be as exhilarating as the ascent, offering a much-needed respite for the muscles and the psyche. Thus, while I cherish the climbs in both hiking and market contexts, I do not dread the declines. They bring challenges, indeed, but like my decades-long hiking experience has shown me, valleys are finite.

As we observe the S&P 500 setting new records and the cacophony around market peaks grows louder, we at Members’ Wealth maintain a cautious optimism. We're not quick to declare the peak reached. We're poised to explore further, seeking new perspectives before making any definitive calls. Yet, we're ready to embrace whatever lies ahead, be it the continuation of the ascent or the commencement of a descent, because, in both hiking and investing, the journey itself is what enriches us. Remember, In the end, whether we're facing the steep slopes of the Roan Highlands or the unpredictable terrain of the financial markets, it's the journey's ups and downs that carve the path to resilience and wisdom, reminding us that every peak and valley is a step toward greater heights.

[i] https://www.fool.com/investing/2024/01/28/the-sp-500-just-set-a-new-all-time-high-history-sa/

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About the Author – Dane Czaplicki, CFA®

Dane Czaplicki is CEO of Members’ Wealth, a boutique wealth management firm that offers a comprehensive approach to serving individuals, families, business owners, and institutions. The firm’s goal is to preserve and grow its clients’ wealth to endure over time, while thoughtfully evolving its strategy to suit an ever-changing world. With over 20 years of wealth management experience, Dane and the Members' Wealth team thrive on bringing clarity and confidence to clients' unique situations. He believes everyone needs sound financial advice from someone whose interests are aligned with theirs, and is determined to put service before all else.

Dane received his MBA from The Wharton School of Business at the University of Pennsylvania and his bachelor’s degree from Bloomsburg University. Outside work, he enjoys spending time with his wife and kids, hiking and camping, reading, running, and playing with his dog. To learn more about Dane, connect with him on LinkedIn.

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