The CIO of a $490 billion fund on the one 'guaranteed losing approach' to investing
The financial crisis of 2008 left many retail investors, both baby boomers and millennials, with an inherent distrust in the markets as their net worths plunged in a matter of months.
The housing market collapsed, Lehman Brothers imploded and the US was in a deep recession which saw stocks fall 57% from their highs in October 2007.
"Back then, people were really scared," said Seth Masters, the chief investment officer of Bernstein Private Wealth Management in an interview with Markets Insider. "They were convinced that even though the world had begun to recover from the financial crisis, it was all smoke and mirrors, aided and abetted by the central bank and that somehow underneath it all, the system was rotten and going to collapse."
And that fear was leading people to make big mistakes in their portfolios. People were sitting in cash and questioning Masters as to why Bernstein didn't own more gold. It was clear clients didn't have any interest in equities, he said.
"But from our perspective, equities at that point looked like an incredibly attractive opportunity," said Masters. Companies were beginning to deliver strong earnings and cash flows, they were conserving capital extensively and their balance sheets were being repaired and getting stronger. And all of those things were not reflected at all in share prices, said Masters.
Fast forward eight years, and investors are enjoying one of the longest bull markets since the 1940s. The Standard & Poor's 500 index has tripled since bottoming out at 676.53 on March 9, 2009. The bull has pushed through a US debt crisis, Brexit, and a President-elect Trump.
"For most of your readers, I think the key challenge is how do you get yourself to actually stay invested because the seemingly easy thing to do is just stay in cash or something else that's safe," said Masters. "That's a very human reaction - that's the one guaranteed losing approach."
This flight to safety, although perhaps comforting, has hurt investors in the long run. "Just think about how much wealth has been destroyed for somebody that has done that," said Masters. "They've basically been missing out on one of the greatest stock market rallies of our lifetime."