Investopedia defines a "wall of worry" as the financial markets' periodic tendency to surmount a host of negative factors and keep ascending. While the "wall" may sometimes consist of a single financial, geopolitical, or natural event, it more commonly is built with concerns on numerous fronts.
In no particular order of crises, I offer the following examples of negative factors.
The global Great Depression, preceded by the stock market crash of 1929, is a distant example of the effects of contagion on an integrated global economy. There are many modern examples, too. In 1997, it was the Asian financial crisis, triggered by the collapse of the Thai Baht. That crisis eventually made its way to Russia and Brazil. In 2015, it was China who devalued their currency, leading to a loss of five trillion dollars in global stock market value.
Financial contagion also happens at the domestic level, usually due to the failure of a bank or other financial intermediary. The crisis of 2007–2008 is thought of as the most severe since the 1930 Great Depression. By March of 2008, the investment banking firm Bear Stearns had failed and was being rescued by the U.S. government. That in turn triggered the largest U.S. Chapter 11 filing ever by Lehman Brothers, and the government rescue of American International Group (AIG).
We don't need to go back even a year to collect a meaningful list of geopolitical crises. In reverse order, North Korea's recent firing of a ballistic missile over Japan put markets on edge. Threatening to take out Guam, not to mention major American cities, Pyongyang's erratic leader continues to rattle global markets. Late spring/early summer saw yet another series of terrorist attacks in France and Great Britain. And in April, the U.S. military attacked a military base in Syria, leading many to assume a full-fledged attack would follow.
As I write this article, cleanup is just beginning for Hurricane Irma. While it is too early to know its exact cost, it's fair to question the market impact given its path of destruction. This is right on the heels of Hurricane Harvey, which looks to be the costliest natural disaster in the history of the U.S.
With road, infrastructure and building damage typical after disasters, local businesses can be shut down for some time. Every year we face new disasters that test our resilience.
Putnam Investments conducted a 15-year study from 2001 through 2016. In it they found that missing the 10 best days of stock market returns reduced the return of the Dow Jones Industrial's Average from 7.28% to 2.60%, cutting an investor's total dollar return by almost half. By trying to predict the best time to buy and sell, an investor also risks missing the market's biggest gains. It turns out that the best way to capitalize on market strength over time is simply staying in the market and doing nothing. Major political and economic events that seem to erupt almost routinely are opportunities to review plans, challenge outlooks, and re-confirm goals and strategies, but they are not selling opportunities. Quite the contrary, as Warren Buffet is known to profess: "You have to be greedy when others are fearful."
It turns out that the best way to capitalize on market strength over time is simply staying in the market and doing nothing.
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