Remember, things are never clear until it’s too late.

-Peter Lynch, One Up on Wall Street

Peter Lynch is one of the great modern investors; during his 13 years managing the Magellan Fund, Lynch averaged a 29% return annually. Lynch was not unlike most great investors. He had times when the Magellan Fund that he managed had significant times when it was down. He knew, when the doom and gloomers were forecasting bad times to continue, that no one had a crystal ball. By the time the doom and gloomers changed their mind and realized the market was headed up and not down, it was too late.

There are now several indications that we have seen the bottom.

  1. $500,000 invested on October 12, 2022 in the S&P 500 total return would by the end of January be worth $572,684, a recovery of 37% of the S&P 500 TR point loss. $500,000 invested in the AFC composite on that same date would be worth $732,650. There seems to be a general recovery but it is a mixed bag with some companies doing very well and others suffering. Being in the right stocks at the right time seems to be important.
  2. We have information now that Lynch did not have during his investing hay day. Edward Renshaw of the University of New York at Albany published a study showing that if 90 days following the bottom, the market had recovered approximately 33%, then the bottom had been reached.1 This would mean, finally, that the market was on the way to full recovery. Renshaw studied all the times from 1872 until 1990 that the market had sold off 5% or more. There were 42 occurrences in those 118 years. In 29 of those 42 selloffs a recession was already in process, while 13 of them occurred during good economic times. In each of those 42 occurrences, the market recovered around 33% 90 days after the bottom had been reached. That study was completed in 1990, but that held true in the 1994 sell off, the 2000 dot-com crash, and the Great Recession of 2008. So far, it has been correct 100% of the time.
  3. Yale Hirsch, who published the Stock Trader’s Almanac, determined that if the first week of January was an up-week for the stock market, there was a 75+% probability the year would be up.
  4. Yale Hirsch went on to show that if the entire month of January was up, the same 75% probability held for the entire year to be positive.

When I was a rookie stockbroker back in 1987, I cold called a prospect who told me the market was overbot and overvalued. The DOW at that time had broken through 1,700, and this prospect had pulled his money out of the market a month earlier and was waiting for the DOW to drop off to 1,300 before he reinvested. I never talked to him again. I don’t know if he is still waiting after 36 years for DOW 1,300.

What I do know is this: those of us who stayed in the market rode that growth from 1,700 in 1986 to over 33,000. In fact, the composite of AFC accounts has done even better, and those are our actual client accounts, net of all costs and fees, not hypothetical or back tested. We stand on our track record while knowing, as we are legally required to say, past performance is no guarantee of future returns.

Renshaw’s study goes further, to say that after the first 90 days following market bottom, the recovery will slow down and take approximately 12 to 18 months to reach new highs.

For those people who stayed fully invested, 2022 was a difficult year. But as January has shown, there is a significant recovery happening. The invested benefited from the most significant market gain that the recovery will produce. At AFC, we feel the recovery has begun and will continue through 2023.

There is reason to believe the recovery will be selective, especially if the earnings reports from the fourth quarter are any indication. There have been firms reporting record earnings and others reporting shrinking earnings and revenues.

There are good reasons to be invested now.


Mike Adams


1. Renshaw, Edward. “Is the Stock Market More Stable than It Used to Be?” Financial Analysts Journal 51, no. 6 (1995): 81–88.