QotD: The crisis, in perspective

So. We are not in a depression. We are not even, so far as anyone knows, in a recession. And while the rest of the world's financial system dissolves in panic, Canada remains a notable island of stability. We do not have an emergency on our hands. What we have is a nasty downdraft in the stock market — one that is reflective of a deeper crisis, to be sure, but a crisis not of our making.

Is a 35% drop in the stock market (from its June peak) a crisis in itself? No it is not. The stock market does not owe you a living. It's down 35% from four months ago, but it was up 50% in the three years before that (see chart). The present "crisis" has taken prices on the TSE all the way back to where they were in the dark days of 2005 — when they had just finished climbing 50% in two years. Think back to that time. You were rich! You were happy! You were counting your money!

Maybe you should have sold then. But you didn't, because you wanted more. Now you're paying the price. You've given up three years of gains. But you're still up 50% from where you were five years ago. And, if you're sensible, you'll make up for not selling then by buying now. Those who were on the buy side on October 19, 1987 made a killing in the months that followed.

Not willing to risk it? Fine. Just sit tight. Worried about your retirement? If you're anywhere under 55, you'll be fine. You don't need the money for 10 or 15 years. Stocks will have more than recouped their losses by then (at a compound annual growth rate of 5%, you double your money every 14 years). If you're over 55 — what are you doing in the stock market?

Andrew Coyne, "The only thing they have to fear", Macleans.ca/blogs, 2008-10-08