Being a successful investor means having a strategy, sticking to that strategy, and resisting the urge to make emotional decisions about the outcome of that strategy. The primary reason I bring this up, is that I often hear from people just beginning their investing life express reservations and trepidation about continuing to invest in their retirement plan while the markets are turbulent.
I can’t tell you the number of times that I have talked with a person who explained, matter of factly, that of course they stopped contributing to their retirement plan at work because the market has dropped. They state this without remorse that this action seems so obvious it needs no explanation. I can take any matter of courses with this conversation. I can talk about how the market is “on sale” and it is the only thing that people shy away from when it goes on sale. I can talk about a long-term time horizon and that retirement is a destination that may be more than 30 years away. Or, I can talk about following a disciplined strategy as the key to increasing the odds of a successful outcome.
What we are experiencing right now, with the market volatility is a normal part of the economic cycle and can no more be avoided than the cold and snow that comes during a Northern Michigan winter. To expect the summer weather we are currently enjoying to sustain through the winter months would be absurd. Likewise, to expect the market to only move upward, without any setbacks is also absurd. It doesn’t mean that you can’t enjoy the winter, you just dress differently.
Think of the current bear market as a financial winter. For what it is worth, a bear market is defined as a decline in price of at least 20%. They happen with a frequency of about every five or six years. So, if you are new to investing, perhaps this is your first one. That’s great. Let’s learn from it while the consequences are not as detrimental. This is the eighth one of my professional career. That’s how old I am. It doesn’t make watching account values go down any easier, but my experience tells me that each of the seven previous ones all fully recovered and went on to set new highs. This time will be no different.
It is during such times as these when wealth can be created. We are given these opportunities once every five to six years and a disciplined investor can take advantage of them by sticking with their strategy and continue to plow money in at a reduced cost. I am reminded of one of the worst bear markets of my career, the Great Recession of 2008 and 09. You may not have been an investor at that time, but I bet you can remember the scary conversations about money at the dinner table. During the midst of the market freefall, one of the world’s most successful investors, Warren Buffett, wrote an op-ed in the New York Times or Wall Street Journal titled, “Buy American, I Am” or something to that effect. He claimed to not know if we were close to the bottom, or when things would recover, but he is finding the valuations of some of the world’s most profitable companies at prices that he could have only dreamed of before.
Reading this article, penned by this great investor gave me a certain insight and level of confidence that was sorely lacking at that time. The media was fanning the flames of fear, as only they can. There was NO positive news anywhere, and I am not exaggerating… nothing. And in the midst of this very dark period, off in the distance, this flickering light of hope became for me a beacon on which to fix my gaze. I believe the very next day, I took his advice and bought some of the companies that I had always wanted to own. I still own them.
The current malaise which we are enduring is no picnic. But it is temporary and by the time you roll around to your retirement this will not even be a distant memory. So much so that, like me, I need to be reminded by books and charts of the things that worried me so much 30 years ago. I have no independent memory of them. When I see them on a long-term chart, they are embarrassingly insignificant.
It is only time and experience that can give proper perspective. But if you need a pep talk, feel free to give me a call. In the meantime, stick with your strategy, continue to invest while things are on sale, and keep your eyes on the long-term goal thirty years into your future instead of 30 days. It will make all the difference.