Lessons from Decades of Investing
The economy and the stock market are both in the dumps right now and people are freaking out. Volatility and the interest rates are the only things going up. Times like these are humbling and they remind investors that we’re not the market geniuses we pretend to be. Retirees and older investors are especially concerned and vulnerable.
Optimizing Purchases
Anyone who has been investing as long as I have has gotten a lot of bumps and bruises along the way. Stocks, bonds, precious metals and even real estate all have their ups and downs. Bitcoin and other cryptocurrencies come with crazy volatility. Anyone who wasn’t prepared for this market correction should probably ignore their investment and find a new distraction. Better yet, now is a great time to pick up some bargains on stocks that are trading at very attractive valuations. Everyone knows we should “Buy Low”, but few have the guts to pull the trigger when the market is dropping every day. I’m buying everything I can afford right now and hoping the bottom is around the corner somewhere. Many experts predict a looming recession, so maybe I should be holding onto my cash. Either way, I try to invest continuously and this helped me a lot during the Great Recession. I bought about as low in 2008 as I’ve seen in my almost four decades as an investor. If I can do half as well during this downturn, I will be thrilled with the results.
Predicting the Future
The great question in my mind is, will there be a recession near the end of the year or will the election restore some sanity to government and improve our economy? I did very well with my investments the last two election years, but this year seems very different. Some big money banks are predicting a recession, including Deutsche Bank, Wells Fargo and Bank of America. Other banks, including Goldman Sachs and JP Morgan put the chance of a recession at around 35%. Also, 57% of American CEOs are predicting a recession, so that is pretty ominous.
If I could predict the future of the stock market I would be retired and travelling the world right now, instead of working for the Man. I believe we can take the lessons of the past to add some clarity to the future. According to Acorns.com, the average recession since WWII lasted about 11 months. Unless you need your investments for income right away, it is best to ride it out and add to your portfolio when possible. If we take a long-term view of the stock market, the high probability is that we will make money if our stocks are carefully selected. Companies are growing, earnings are solid and there are groundbreaking new products and technologies.
Market Dynamics
Fear & Panic – The easiest way I know to lose money in the stock market is to panic and sell, after the market has already dropped. It’s hard to avoid the panic induced fear when it’s all over the news and every pundit and reporter are freaking out on TV. When I was younger broadcasters simply reported the news, but now fear and panic are used as marketing techniques. When you cut through the drama on TV and in the markets, there are very real reasons the markets have dropped and it may take awhile to turn around. The perfect time to sell was back in November. If you sell now, you would likely be selling good stocks at a low valuation, possibly for a loss.
Arrogance & Greed – The second easiest way I know to lose money is to believe you are smarter than the market. I am the poster child for this and I have made many investing mistakes because of it. It took years before I came to my senses and learned to go with the momentum. One common piece of market wisdom is “Don’t Fight the Fed”. The Fed seems pretty determined to raise interest rates and this is going to tank the markets in the short term. If you have the time and income, this year could present a sweet buying opportunity.
The Bottom Line
Nobody can reliably predict the stock market, even part of the time. The good news is that it’s not necessary in order to make a reliable profit. Choose good investments and invest for the long term, in order to prosper.
“The stock market is a giant distraction from the business of investing.” – John Bogle
I totally understand how newer investors get jittery at times like this. Experiencing a few downturns and the subsequent march up over time changes your outlook. I look the March 2020 sudden drop as a bit of a gift (because everything recovered quickly), I was able to have a live benchmark test of what I owned and every security experienced some pain. I then looked at all my holdings and weeded out the ones with extreme volatility and dividend cuts that were not reinstated to my expectations. Practically all of my holdings bounced back for the most part, with the exception of CHR. So selling the securities that i now felt uncomfortable with when they recovered was very painless.
Like you mentioned, I purchased some stocks at depressed prices even though part of me said NO.
One other thing people can do to calm their fears is look at the almost 100 year total return chart of the S+P 500. Look at how many (the sky is falling) down V’s there were along the way, but generally the direction is always up with time in the market.
Hey Paul, thanks for stopping by.
March 2020 didn’t bother me much either. It recovered so fast I barely had time to worry about it. It was 2008 that really had me worried the entire financial system could collapse. I made a ton of money in the recovery, but it sure had me worried for a year or two. I doubled the amount I was putting in per month and I killed it on the rebound.
I have some great stocks in my portfolio right now and there is no way I’m selling them at these valuations. I sure wish I had some money on the sidelines to put in right now, but I’m saving a lot per month, so I just need to be patient. The market could take a big dip or head into a recession, so I just need to play it cool.