Skyfalling

In 1664, Europe watched a comet streak across the heavens. To the peasant farmers and nobles alike, this was not a pleasant sight to behold. In this period of superstition, comets were portentous intruders, and they had been feared for thousands of years.

Comets could haunt the skies for several weeks before they disappeared. No one knew why they left or where they went. Night after night, all would look upward to see if the unwanted guest had appeared again. The longer the comet appeared, the gloomier the public mood grew. To some extent, one can understand their trepidation.

As scientific inquiry progressed in the world of astronomy, many, including perhaps the most famous comet researcher of all — Edmond Halley — used the noted work done in physics by Isaac Newton and others to successfully prove that a comet’s appearance in 1531, 1607 and 1682 would also return in 1758. Halley died in 1742, so he didn’t live to see the return of the fireball posthumously named in his honor.  But as far as ending life on our planet, since their first sighting in 239 BC, Halley’s comets have come no closer than about 14 million miles from Earth. Halley showed that comets were a natural and universal phenomenon for which to be observed and marveled, not feared.

Centuries later, many investors fear that the “stars are aligning” to bring about the next crisis in financial markets. But dreading and worrying about the next financial crisis is somewhat like being afraid of Halley’s Comet. We shouldn’t worry about what we cannot control, even when we hear the financial media using ominous terms such as crisis, meltdown or bear market.

Although there is not one strict definition of a bear market, one common definition is a decline of 20 percent or more over at least a two-month period. Using this definition, there have been 15 bear markets since 1926. With each episode of a downturn in stock prices that qualifies as a bear market, many investors look to the future with a furrow on their brows. From a distance, one could even view the ups and downs of the market like an imaginary comet trail shooting across the sky.

Three and a half centuries ago, Europe was a place of incredible discoveries, such as gravity, calculus, and the microscope to name a few.  By comparison, the times we live in are bringing new technology and opportunities our way at light speed. Likewise, for most of the 20th century, investors did not have nearly the same amount of research and market history that are available to us today. Even though our emotions might sometimes get the better of us, we now have abundant research in the field of investing regarding efficient markets that equips us to understand and deal with market downturns. And while securities don’t function in quite the same clockwork manner as celestial bodies, comets and markets share a cyclical nature in common.

Halley will be back in 2061. Have your camera ready.

Copyright © 2014, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm.

Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any link contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.

Share Button

Jim Whiddon, CFP®, ChFC, CLU

James Whiddon, CFP®, MSFS, serves as Director of Investor Enrichment at Buckingham Strategic Wealth. He is the author of two books: "Wealth Without Worry" and "The Investing Revolutionaries."

Foundational Materials

Buckingham prides itself on producing a wealth of non-biased financial information on a regular basis. See these articles from our blog and from our thought leaders around the nation.

Buckingham Library

Click on the covers to learn more and order the books our national thought leaders have written in recent years.

Previous Slide
Next Slide