Is This Market Correction Different From the Rest?

The stock market hasn’t had a sustained downturn in a long time, so many younger and newer investors aren’t quite sure how to handle it. In this Motley Fool Live video clip, recorded on Jan. 27, Fool.com contributors Matt Frankel, Travis Hoium, and Rick Munarriz, all of whom have invested through several market crashes, put the current situation into a historical context.

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Travis Hoium: What does this place in the market feel like to you historically? Is there a historic precedent or is there a framework that you can think of? Is it the late ’70s, is it a mini dot-com bubble? What are your thoughts? I’ll start with you, Rick, since you have the most experience writng.

Rick Munarriz: Yes. Again, I was with the Fool since ’95, so I not only lived through the dot-com bubble, what it did to investing, I lived with the dot-com bubble, what it did with an online company. It was definitely something, very challenging times back then. We were on AOL back in the early days, that was our primary source of just, basically, as through AOL.

But every time there’s been a sharp drawdown, at least from the time I’ve been since Fool, so not so much Black Friday, which happened in the ’80s, but talking about the dot-com bubble, which happened basically five, six years after I started working with the Fool, we had the dot-com bubble. We had the 2008-09 global recession with derivatives, basically, of getting flushed down the toilet. Every time there’s been a sharp drawdown, there’s always things to say, oh, yeah, we went through it and we lived, that you’ve held on and you were fine.

But technically, it’s different every time. The one constant is that every time there’s been a major drawdown, months or years down the line, we’d gone on to hit new highs again, so there’s always that confidence that even though it feels different, the plot is a little different, there’s a different screenwriter writing each demise, you learn things along the way, but also I think it does change. I can’t draw parallels to this to the dot-com bubble because back then, the valuations were just insane, it was just based on eyeballs. How many people were watching something, no revenue.

Hoium: There wasn’t real companies behind them like there are today.

Munarriz: Yeah, yeah, so there’s actually legitimate companies. Even though some of the growth stocks aren’t profitable, logistically, you see the clear path to very profitable and very high-margin growth down the line. They all have strong catalysts now versus the 2000 dot-com bubble.

The 2008-2009 correction, this is similar in that sense, that the global economy feels very wobbly right now. It wasn’t inflation, but it was definitely a global shakeout that happened. But again, the good stocks bounced back and the bad stocks didn’t, and I think that’s what really matters. If you like a stock and the thesis is sound and you think it’s going to continue to grow in this environment, and a lot of them will, you are on the right track. The stocks just happen to be a lot cheaper. But again, don’t just assume that every thesis has remained the same. Take a closer hard look at every stock you own to see where you are. But yeah, I do think every correction is different, but the outcome is ultimately in favor of the free markets and the stock prices.

Hoium: Yeah, I will just add a little bit of that and then pass it to Matt. But I think what’s unique about this one we’ll probably look at a little bit differently is the amount of money that was flooded into the market over the last, not only 18 months to two years, but really the last decade or decade and a half, we never really stopped the stimulus after the financial crisis, and that’s just created a new dynamic.

I think there are a lot of parallels to the tech bubble, and it’s company-by-company basis, where I look at a company and you go like, “Why do they have a $5 billion valuation when I don’t really believe that this company will be around in five years?” There are plenty of those kind of things going on, which feels very 2000-ish. But if your company is doing this but your stock is doing this, just focus on the underlying company because that’s what you want to hold long term. Matt, what are your thoughts?

Matt Frankel: I’ve been investing since college, but I started investing heavily in the tailwind of the financial crisis days. And for the same reason a lot of people started investing in the past couple of years, because I saw a ton of opportunities. Stocks were down 70%, 80% percent, good companies, and I saw a lot of opportunities. It just seems a great time to start really getting serious about it.

If I have to draw parallels to what’s going on today, it’s tough to compare it to any of the crises you mentioned that some of us have been investing through. I would compare it more to the late ’70s, early ’80s, when inflation fears were gripping the markets. Once inflation gets under control, I think is when you’re going to see really the next bull wave, especially in growth stocks. Inflation was really high, as someone mentioned, I think it was Rick, in the late ’70s, early ’80s. I was born in 1982. My parents’ mortgage to the house they bought was 18% interest at the time due to high inflation.

When inflation started getting under control, you can see the ’83, ’84 when inflation were starting to get under control, what happened to the S&P. I could see the market languishing while inflation’s high and then shooting higher once it starts to get under control, but who knows when that’ll be. So, if I have to draw a parallel, it would be to that period.

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