By: Martin Romo & Jim Fullerton
It’s déjà vu all over again. With inflation higher than it has been since the 1970s, interest rates rising and the economy slowing, many have grown fearful of investing.
The last time it felt this way was the start of the COVID-19 pandemic. I remember sharing with my colleagues a classic speech from former Capital Group chairman Jim Fullerton. This speech, delivered in November 1974 amid a prolonged bear market, provided us with much-needed historical perspective and a dose of optimism when it was in short supply.
The “Fullerton letter” as it has come to be known, has been recirculated among Capital Group’s investment team at least five times in my career. My former colleague, retired equity portfolio manager Claudia Huntington, shared it in 1987, saying, “I have been saving this speech, one of my favorites, for a time like today.”
I think it’s been shared so often because Jim captured so well what we all know: It is always darkest before the dawn. Over time, and in time, the financial markets have demonstrated a remarkable ability to anticipate a better tomorrow even when today’s news feels so bad.
The stock market has overcome past bear markets and unsettling news
Sources: RIMES, Standard & Poor’s. As of October 31, 2022. Chart shown on a logarithmic scale. Past results are not predictive of results in future periods.
We are once again in uncertain territory. It feels scary and terrible. It is exactly those feelings that make this speech so timeless. It’s precisely when the backdrop has looked so difficult that the markets have begun to recover. It’s hard to know when that turn will happen this cycle. But, based on prior experiences the market will turn eventually — and that should provide some solace.
In November 1974, few people thought it was a good time to invest. The Dow had lost more than 40% from its high in January 1973. In his letter, Fullerton recalled an even darker period in our nation’s history — April 1942. His remarks follow, and you can download a copy of the letter:
“We have been here before”
One significant reason why there is such an extreme degree of bearishness, pessimism, bewildering confusion, and sheer terror in the minds of brokers and investors alike right now, is that most people today have nothing in their own experience that they can relate to that is similar to this market decline.
My message to you, therefore, is: “Courage! We have been here before. Bear markets have lasted this long before. Well-managed mutual funds have gone down this much before. And shareholders in those funds and we the industry survived and prospered.”
I don’t know if we have seen the absolute bottom of this prolonged bear market, (although I think we’ve seen the lows for a lot of individual stocks).