I read about an old saying a few days ago that people do not go to church to hear the 11th Commandment. They go to reinforce the 10 Commandments that are already in place.
I think the same is true with the investment Commandments. Here are a few reminders that I come back to whenever we go into a normal market pullback.
Time Horizon is the only thing that matters during a market correction
Since 1946 there have been 84 corrections (1) of between 5% and 10%. That’s more than one per year. This is normal. You knew this going in. This is the fee we pay to earn a better return and enjoy a better lifestyle as a result. If your money is not long-term then it should not be invested anyways.
The market correction is when we can enjoy beauty of diversification
It’s not uncommon to hear about the wonders of a concentrated portfolios where one invests significantly in a few names or niche markets. This works wonders when those concentrated or niche positions due well but are gut wrenching when they go down 30% or 40% or more, when the general market is off only 10%. Market pullbacks are when we enjoy wonder of diversification.
Reviewing the value of your portfolio daily, weekly, or monthly is a waste of time and in fact harmful
Regularly reviewing your portfolio will create unnecessary emotions which has been proven to be the biggest enemy of successful investing.
A great portfolio and a great wealth strategy is worthless if we don’t stick to it during rough periods.
No explanation needed.
Undoubtedly there have been a few people who panicked during the increased volatility of the past month and sold a portion or all of their long-term money. If history is any guideline, the great majority of them will end up with less money in the end.
Many enjoy discussing and rationalizing why the current correction is occurring, but in reality, there are far too many complicated interrelated issues that affect markets including investor sentiments and emotions. I’m not aware of any mathematical analysis or computer program that provides any insight in consistently predicting accurate outcomes based on emotions. If you know of any, please fill me in so we can both become rich.
If any one group knew how to predict where the market is going it would likely be economists since they invest their entire lives researching this. According to a Google search I conducted on January 24, there are approximately 17,520 economists employed today in the US. After sharing that immensely valuable statistic it is probably a good time for a Warren Buffett Quote.
“You have all these economists with 160 IQs that spend their life studying it, can you name me one super wealthy economist that’s ever made money out of securities? No.”
There will always be reasons to sell and there will always be corrections. Take a look at the chart below: pick any “crisis” and pretend you sold your portfolio at that time. Now, guesstimate what your portfolio would be valued at today.
Helping sort out donations at the “Youth Without Shelter” charity in December.
(1) CNBC January 25, 2022
(2) The views and opinions expressed in this article may not necessarily reflect those of Investment Planning Counsel Securities Corporation