We are now at the close of calendar 2022… and let’s admit, it’s been quite a year.  Then again, as a matter of perspective, it’s been a heck of a ride these last 1,000 days.  Thus, before we watch the ball drop on New Year’s Eve, let’s take a few minutes to review just some of the calamitous events since December 31, 2019 (1,093 days ago) and simultaneously contrast it with how we have fared financially.  That might seem like an attempt at self-flagellation but let me suggest it is very wise for us to do it if we are to grow smarter each year and 2023 is impatiently breathing down our neck.

A Note On Time Frames

NOTE: Lest you think I am cherry-picking time frames, let me remind you that I am excluding the stock market performance of 2019 where the Dow Jones Industrial Index went up 22.3%^[i].  For the record, through February 19, 2020, when it hit its tippy top high, the S&P 500 Index AVERAGED a 16% annual return since its 2009 market lows^[ii].  I repeat; I AM IGNORING THESE GAINS and just focusing on the miserable 3-year stretch since 2019.  What did we experience?

In no order of importance, but somewhat chronologically:

1. We saw the greatest democracy in the world suffer a nation challenging event now simply called “January 6^th.”
2. A global pandemic hit. By the end of March, the S&P 500 had dropped nearly 20% in value^[iii] (the Dow Jones Industrials lost 37% in 34-days^[iv]).
3. Scientists discovered a vaccine by November 2020, but it took months to get it distributed.
4. Meme stocks soared – then crashed.
5. In early 2021, Cryptocurrencies went skyrocketing up and “you had to be fool not to invest in them” (which have plunged 69.9% in 2022^[v]).
6. Special Purpose Acquisition Companies (SPACs) saw a resurgence with hundreds of billions in deals (which have shed 71% of their value in 2022^[vi] according to the DeSPAC Index).
7. By December 2021, American consumers were experiencing the highest level of inflation most of them had ever seen (and it has since gotten worse).
8. Russia invades Ukraine in February 2022, precipitating a humanitarian crisis and renewed geopolitical uncertainty.

The Bigger Picture

Do you think anyone foresaw these events at Holiday time in 2019? These events have wracked the world in untold ways and we have absolutely not fully understood the implications of all of them. Yet — and this is the key message — in spite of this unforeseen health and global economic carnage the companies that operate in this world must carry on and find a way to strategize their business in light of untold and innumerable variables, supply products, conduct services, hire people and use every bit of their ingenuity and willpower to simply survive.  There is no other option so they have to find a way. 

If those companies flog and slog their way forward, they survive. If you’re investing, you own those companies, so as promised to you in the beginning, let’s see how investors did in this unbelievably stressful period.

The closing of the Dow Jones Industrial Average on December 31, 2019 was 28,262^[vii].  As I put my pen to paper in this letter, the market closed December 29, 2022 at 33,220^[viii] – a year that saw the broad market down 25% at one point. Those comparative benchmarks represent a pure 5.29% per year return on the Dow, and if we add in the customary 2% annual dividends generated^[ix], we see a 7.29% per year return on what is one of most world shattering worst 3-year economic periods that exists on record.  Now to be fair, 7.29% per year is not the 10% long term average I wrote about last month… but complaining would be like kicking a man when he’s down. 

Looking Ahead

In summary, as we put 2022 in the rear-view mirror, let’s be grateful for the cumulative increase in your portfolio but NOT forget that it would have been literally impossible to have foreseen these truly significant and challenging events. The only thing I have foreseen is admirable ability of men and women to make progress in spite of the challenges.

It remains my deep and distinct honor to serve you.

From all of us at Wellspring, Happy New Year.

Patrick Zumbusch

Founder and CEO

Wellspring Financial Partners

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[i] “Stocks Post Best Annual Gain in 6 Years With The S&P 500 Surging More Than 28%” (Fred Imbert, CNBC, December 3, 2019

[ii] “Notes On A Thousand Days Of Chaos” (Nick Murray Interactive, December 2022)

[iii] “This Has Been a Test: Developing a Financial Plan You Can Stick With”(David Booth, Perspectives, Dimensional Fund Advisors, December 20, 2022)

[iv] “What Was The COVID-9 Crash Of 2020; Causes And Effects” (The Street, November 9, 2022)

[v] “How Cryptocurrencies Fell To Earth In 2022: Eight Charts That Tell The Story Of a Cruel Crash” (Brian McGleenon, YahooFinance.com, December 22, 2022)

[vi] “SPAC’s Collapse As $11 Billion Of Deals Are Called Off Within An Hour” (Bailey Lipshultz, Bloomberg News, December 5, 2022)

[vii] “Stock Market Ends 2019 On a High Note As Wall Street Closes Out A Banner Year” (Chris Matthews and William Watts, MarketWatch, December 31, 2029)

[viii] YahooFinance.com (December 29, 2022)

[ix] “SPDR Dow Jones Industrial Average ETF – 22 Year Dividend History” (MacroTrends, December 29, 2022)