Guiding Our Clients Through 40 Years of Market History

By David K. MacLeod, CFA, CFP®

As we celebrate 40 years of serving our clients this year, we reflect on all the ups and downs we have experienced in the financial markets since Eclectic Associates was founded in 1984. While the world around us has evolved, our investment philosophy has remained consistent. Our focus on our clients’ long-term goals, diversification, and taking only necessary risks has guided us through periods of economic prosperity and uncertainty alike.

In this article, we will highlight five pivotal periods that have shaped our firm’s history and include direct quotes from letters to our clients at the time: Black Monday in 1987, the Dot-Com Bubble of the late 1990s, the 9/11 terrorist attacks, the Global Financial Crisis of 2008, and the COVID-19 pandemic. We have stood alongside our clients through each of these periods, helping them stay grounded and making the best decisions for their futures.

Black Monday: October 1987

On Black Monday, the Dow Jones Industrial Average fell 22.6% in a single day—the largest one-day percentage drop in history. The sudden decline created widespread fear and uncertainty, leaving many investors worried about the future of their portfolios.

In letters to our clients around that time, we sought to provide good direction and reassurance. Prior to the crash, in March 1987, we wrote, "The stock market has increased significantly in value during 1987. It has also been rather volatile with large gains and losses in the Dow Jones averages in any one day. Our view is the market has room to continue to increase... This upward movement will not be a smooth straight-line but will continue to have significant upward and downward movements."

Later, in our November 1987 letter to clients, we acknowledged the anxiety many felt in the aftermath of Black Monday: "You, like the rest of us, have to be concerned over the recent violent swings in the marketplace. None of us like what has happened, yet we all know market ups-and-downs are part of every investment."

We reminded clients of the importance of focusing on the long term, writing, "None of us are short-term speculators. We all are making investments for the long-term... Over time, ownership (stock) in private enterprise (business) has paid the most consistent and highest rewards to the investor." Our recommendations were clear: "Hang in, do not make major portfolio changes... Study and stick with basic investment practices. Do not get caught up in either extreme: panic or 'get-rich-quick' schemes."

Our commitment to these principles—remaining calm, avoiding unnecessary changes, and maintaining a diversified, long-term approach—helped our clients navigate this challenging period.

The Dot-Com Bubble: Late 1990s - 2000

The late 1990s brought a frenzy of speculation in technology stocks, ultimately culminating in the burst of the dot-com bubble in 2000. During this period, we saw firsthand how investors who chased speculative gains were left with heavy losses. Our philosophy of taking only necessary risks proved crucial.

In our January 2000 letter, we anticipated potential volatility, writing: "We expect the year 2000 to be interesting and probably volatile from an investment perspective. Currently, the economy is very strong and unemployment is very low. To us, this sounds like great news. However, from an investment perspective, it makes people more concerned about inflation returning." We reminded clients that the past several years had been extraordinary, with high returns for large growth stocks, but emphasized that such returns were unlikely to persist indefinitely: "We do not expect the high returns (20% +) to continue. Historically, we think of the stock market as growing around 10% per year."

Later in October 2000, after the dot-com bubble had begun to burst, we wrote, "From the beginning of the year through mid-March, the Nasdaq gained about 25%, and some market commentators were saying that New Economy stocks would continue their stratospheric growth forever. By that time, investors in technology companies were paying virtually no attention to the price of the shares they were buying. No matter how much they paid, they assumed they could always sell the shares for more. In striking contrast to the declines in companies that were hot, some things that people couldn't sell fast enough earlier this year have come roaring back. The principle of diversification is still very valid."

We have continually reminded our clients of the importance of diversification and a disciplined, long-term approach. Our January and October client letters emphasized that avoiding extreme investment allocations—whether driven by greed or fear—was critical to investment success.

9/11 Terrorist Attacks: September 2001

The terrorist attacks of September 11, 2001, were a profound moment of grief and uncertainty. On September 12th, we wrote to our clients: "Yesterday was a day of great tragedy and evil for the United States. We grieve with you the loss of lives and the loss of our nation's sense of security. We continue to pray for the families of those impacted as well as our leaders who must guide our country through this time. While our security does not ultimately lie with what man can provide, this act of terrorism does make us stop and wonder about what is safe and secure."

From a financial perspective, we acknowledged that these feelings of insecurity had extended to the markets: "The papers today are full of renewed worries about the stock market and a possible recession. The stock market is closed again today, Wednesday, and we do not know whether it will open tomorrow or perhaps not until next Monday. We think it is wise that the stock market was closed yesterday and remains closed today. As we saw in overseas markets, the initial reaction to an event like this is to sell stocks and buy bonds or other more secure items. Many of the overseas markets were down three to five percent overnight. But as we write this, those markets are already showing some signs of recovery."

Our message to clients was to remain steady and not make major changes: "Our perspective is to ride through this time without making major changes in the amount of money we have invested in the stock market. We may actually view it as a buying opportunity if the stock market drops significantly. Usually incidents like yesterday's cause a drop in the market and then a rebound after things have settled down. How quick the rebound occurs depends on the overall economy and the mood of the country. We do not expect a quick rebound, but if we have a drop in the stock market we expect it to be temporary. Therefore, we will ride through this time of increased volatility."

Indeed, the markets did remain closed until the following Monday. The stock market fell dramatically that month before recovering and, in fact, the S&P 500 Index ended the year 2001 5% higher than where it had closed on September 10th.

The Global Financial Crisis: 2008-2009

The financial crisis was a pivotal moment in modern financial history, marked by the collapse of Lehman Brothers and a near meltdown of the global financial system. The downturn was deep and many investors questioned whether they should continue to invest at all.

In our April 14, 2009 client letter, we addressed these uncertainties and shared some hopeful signs with our clients: "While the rally that began in November was nullified by the declines in January and February, there are reasons to believe that the economy—and therefore the market—has turned a corner. Foremost among those reasons is that large financial companies are beginning to return to profitability. The latest rally began in March when Citigroup announced that its operations would be profitable for the first quarter. In subsequent days, Wells Fargo stated that the first quarter would be one of its most profitable ever, even though the quarter included results from digesting the acquisition of a very troubled adjustable-rate mortgage business (Wachovia). Finally, this week, Goldman Sachs announced profits of about $2 billion for the first quarter, and an intention to pay back the money it recently received from the government in the form of TARP funds."

We emphasized the importance of the financial sector's recovery: "The return to health of the financial sector is key to the health of the entire economy. Banks and securities firms, through ill-advised lending practices, led us into this crisis, and they should be able to lead a recovery as well. The government has stepped into the breach and has become a lender of last resort, but we would much rather see companies reclaim that role. Profitability is the first step toward allowing that to happen."

We also acknowledged the continued uncertainty and volatility: "Uncertainty still has a prominent place in the markets and the economy. We therefore expect to see continued, although lessening, volatility. We would not be surprised to see 10-15% declines in the stock market, even during a long-term recovery, so we recommend you prepare yourself for that possibility. However, as we saw in early March, the market can reverse course dramatically, just when it seems as if there is nothing positive on the horizon."

We reassured clients about our firm's stability: "Many of you have asked us how Eclectic is doing during this time. It certainly has been a difficult time as we see and understand the impact of the recent stock market performance on the lives of our clients. As a company, we are doing reasonably well. We do not have any debt, we do not see any need for layoffs, and we certainly do not have any concerns about the long-term viability of the company. Income will obviously be down as it will be for most of you, but not enough to be a long-term concern."

This was intended to provide our clients with reassurance and confidence in our shared strategy. By maintaining our disciplined, long-term approach, our clients were ultimately rewarded as the markets recovered and again reached new highs in the years that followed.

COVID-19 Pandemic: February-March 2020

The COVID-19 pandemic in early 2020 led to one of the fastest stock market crashes in history, with U.S. stocks dropping 35% peak to trough. In our April 2020 quarterly client letter, we wrote: "U.S. stocks lost 20%, reversing recent gains, as investors fled to more stable assets due to the COVID-19 crisis. But the decline only tells part of the story. In March, the daily average percentage change of the S&P 500 index was +/-5%, an extremely high level of volatility. Energy companies suffered the worst losses as oil prices posted a record decline (-66%) on weak demand and the risk that OPEC wouldn't come to a quick agreement on production cuts."

We shared our long-term perspective: "Amidst all the bad news and fear prevalent in the markets, we return to fundamentals. We think the virus will be defeated, and the economy will eventually recover. After the recent sell-off, our outlook for stock market returns has increased for the next ten years. We are actively rebalancing portfolios, which for most of our clients means buying more stocks while they are cheap. Regardless of whether the stock market has already bottomed (which we won't try to predict), it should begin rising before the economic news improves. In the words of Robert Arnott, the strongest bull markets are not built on a foundation of good news, but on diminishing bad news."

Our focus during this challenging time was to remain disciplined, rebalance portfolios to take advantage of opportunities, and keep our clients informed of the measures being taken to stabilize the economy. This approach allowed many of our clients to participate in the subsequent sharp recovery in the markets.

Steadfast Through Change

As we reflect on these pivotal market events over the past 40 years, we see a recurring theme: periods of uncertainty, fear, and ultimately recovery. Through each of these events, Eclectic Associates has been a steady presence, helping our clients navigate market turbulence with confidence. Our principles of diversification, disciplined risk management, and a long-term outlook have been the compass that guides our decisions and recommendations.

The world will continue to change, and there will undoubtedly be more moments of upheaval in the future. But our philosophy remains the same, and we will continue to help our clients achieve their financial goals—not by predicting the next market crash or boom but by staying committed to a timeless, disciplined investment approach.

If you or someone you know could benefit from our approach, we’re always here for a conversation. Feel free to reach out or schedule an introductory call with one of our advisors.