The Patient Investor

As the Dow Jones Industrial Average reached 40,000 on May 16, 2024, I found myself reflecting on my career and what I’ve witnessed in the U.S. stock market over the last twenty plus years.

Note: The “Dow” or Dow Jones Industrial Average is an index comprised of 30 of the largest companies in the United States stock market (such as McDonalds, Apple, and 3M).

As one of the oldest market indices, the “Dow” is often used as a proxy for how the stock market is performing.

While we believe broad diversification is prudent for investors (and that’s a whole topic itself), I’ll be focusing on the U.S. stock market here.

I began my career at Piper Jaffray in early 2000. I had just finished an MBA from the University of St. Thomas and the investment world intrigued me. Over the last several years, the markets had gone through an explosive rally, driven by the promise of the internet. Technologies were seeing their stock prices skyrocket and it seemed like everybody was jumping on board. What an exciting time to start a career in the financial world!

In one of my prior blogs entitled “Would you have fired Warren Buffett?” I discussed how Buffett underperformed during this time with some investors questioning if he was too old fashioned. Some went so far as to fire him as their investment manager.

Unfortunately, my hiring coincided with the end of the party. In what’s become known as the “tech bubble,” stocks cratered and the tech-focused NASDAQ index fell 78%. That was my first lesson in the risk of failing to diversify and chasing past returns. When a certain investment or sector gets hot, I’ve seen that play repeat itself over the years in things like individual stocks, real estate, and cryptocurrency.

It’s interesting to note that after the tech bubble burst, Warren Buffett went on to become one of the most successful investors in history.

As is typical with investment firms, they tend to hire during boom times and downsize in bust times. After the tech crash, it was no different, and I survived three rounds of layoffs at Piper Jaffray while witnessing many friends being shown the door.

I began advising clients in 2005, and shortly afterward, Piper Jaffray's wealth management division was sold to UBS, one of the large Swiss banks.

In 2005-2007, euphoria wasn’t as much in the stock market as it was in the real estate market. Many people had turned their focus to buying (and leveraging up) properties. Fueling the fire, banks were all too willing to loan them the funds to do so and bundles of subprime mortgages were being packaged and sold. 

Soon, questions emerged about the safety of banks and the global financial system as a whole. Things escalated quickly with Lehman Brothers going under in the largest bankruptcy in U.S. history. The “global financial crisis” was underway, resulting in the Dow falling from 14,165 on October 9, 2007 to 6,926 on March 5, 2009. A fall of 51% in under five months had several clients I worked with questioning if they’d ever recover from the losses.

It was a difficult time with real questions as to whether the global financial system would survive. Many companies went under, and many others would have, if not for government bailouts. UBS, my employer at the time and one of the world’s largest banks, had been one of the primary buyers of U.S. subprime mortgages, which brought them to the brink of bankruptcy. 

Fortunately, the world emerged from the crisis and markets recovered quickly. Amazingly, clients that stayed invested saw their portfolios making new all-time highs within only a few short years.

UBS didn’t fare as well with billions lost and the need to downsize. Substantial layoffs carved up my once-promising new advisor class that numbered 30 of us a couple of years earlier, down to 3 of us overnight.  I had apparently done enough to save my job but the appeal of working at a large bank was gone for me.

Fast forward through several years of hard work and growth in the stock market, I left UBS to join Allodium in 2015. Coming to an independent, fee-only firm felt like a breath of fresh air. My wife has commented many times over the years on how important that change was in my life. She said I “went from miserable to happy” and I couldn’t agree more. 

You may recall that I mentioned the Dow fell to 6926 on March 5, 2009. We recently celebrated the 15-year anniversary of that gloomy day and the Dow has now crossed the 40,000 mark. That’s an increase of 477% in a mere 15 years (with a global pandemic mixed in for good measure). People innovating and expanding their businesses never ceases to amaze me!

To get those unbelievable returns, an investor didn’t need to pick the next Apple, Tesla, or Nvidia. They didn’t need to get lucky jumping out of the market before a crash or loading up on stocks before a boom. They only needed to invest and be patient.

Stay patient, my friends.

Learn more about Eric Hutchens

Hello! I’m Eric, the president and chief investment officer at Allodium Investment Consultants, located in Minneapolis, MN. I am dedicated to helping clients achieve their unique goals through designing tax-efficient investment strategies and comprehensive financial planning.  In my spare time away from the office, I enjoy relaxing at my cabin in northwest Wisconsin with my wife, two sons, and two rescue dogs. I have also volunteered with my church, serving on the elder board and as a youth group leader.

The information provided is for educational purposes only and is not intended to be, and should not be construed as, investment, legal or tax advice. Allodium makes no warranties with regard to the information or results obtained by its use and disclaim any liability arising out of your use of or reliance on the information. It should not be construed as an offer, solicitation or recommendation to make an investment. The information is subject to change and, although based upon information that Allodium considers reliable, is not guaranteed as to accuracy or completeness. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment.