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Column: The war between emotion and logic

We are emotional beings, but we need to engage our logical capabilities. I’m not digging my head in the sand. The coronavirus is a very real human tragedy and so is its potential to seriously affect the world’s economy.
Richard Vetter
Richard Vetter is a Certified Financial Planner and owner of WealthSmart Inc. File photo

We are emotional beings, but we need to engage our logical capabilities.

I’m not digging my head in the sand. The coronavirus is a very real human tragedy and so is its potential to seriously affect the world’s economy. I know the same could have been said for all other major crises we have overcome through the millennia. The truth is, it gets messy in the middle.

From January 1, 1926 through January 31, 2020, the Standard and Poor 500 Index (S&P 500) of the top 500 U.S. companies has grown $1 to $9,234, a 10.19-per-cent compound rate of return. This is one major example of the power of our striving human spirit. Here are some of the significant events we have overcome over that history:

The Wall Street Crash of 1929. Lasting over four years, this was the bursting of a speculative bubble fueled by unreasonable leverage and insufficient regulatory oversight. It led to the formation of the Securities and Exchange Commission in 1935.

The Recession of 1937 – 1938. At the tail end of The Great Depression, people had doubts about President Roosevelt’s New Deal program. They were wrong.

The “Flash Crash” of 1962. At the tail end of a long post-WWII rise in the markets, the markets crashed due to a number of factors, including inside trading, and ending after the Cuban Missile Crisis.

The 1973-1974 Stock Market Crash. After the collapse of the Bretton Woods system of international monetary management and the U.S. dollar de-valuation, it was compounded by the 1973 oil crisis.

Black Monday, October 1987. The S&P 500 dropped by more than 18 per cent in one day. Today, “circuit breakers” are in place to automatically shut down trading at critical points.

Early 1990s Recession. This was due to a number of different factors such as the Savings and Loan Crisis, Iraq’s invasion of Kuwait in July, 1990, and subsequent oil price increases.

Dot Com Bubble, March, 2000. Excessive speculation in Internet-related companies through the late 1990s came to an abrupt end.

9/11 Attacks – In addition to the human tragedy and global fear, the insurance losses alone accounted for $40 billion.

Stock market downturn of 2002. Post - 9/11 global fear, further negative technology company news, and the Enron and Arthur Anderson scandals, caused the markets to react negatively.

Financial Crisis of 2007-2008. Triggered by the collapse of large financial institutions in the U.S. due to exposure to sub-prime loans and credit default swaps. The shocks spread throughout the world.

European Debt Crisis of 2010. After a 45 billion Euro EU/IMF Bailout package, Greece’s credit rating was pummeled, spreading fear to other world markets.

Coronavirus Outbreak of 2020. History is still being written.

Through these crises, the markets learned, regulatory practices improved massively, trust in free enterprise improved and the power of human ingenuity continues to amaze us.

Don’t panic.

This column is part of a monthly series courtesy of Richard Vetter, founder of WealthSmart Inc.