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An Investor's Two Best Friends

January 20, 2022

We’ve all had best friends, right?  Through each stage of our life, we’ve all had that friend (or friends) who has been there for us through thick and thin.  I’ve had more than a few best friends throughout my life.  It seems as though at every stage over the course of my lifetime, I’ve had best friends from being a neighborhood kid to high school, college, single, married, and married with kids.  At each of life’s many stages, I’ve had someone there to share my hopes and fears with. 

 But what about investors?  Do they have a best friend (or friends)?  No matter what stage you’re at as an investor (and I would argue that investors have only 2 stages, accumulation and distribution, because you are either accumulating wealth or distributing it), you need a friend to lean on when the day to day noise gets to be too much.  Let me suggest to you that an investor has two best friends:  Patience and Time.

 Patience and time can provide the average investor the necessary strength to develop and mature into a disciplined, diversified, goal-focused, plan-driven, long-term equity investor.  Because like it or not, the physiological odds are stacked against the average investor.  At every turn, the investor is bombarded with financial journalisms’ unyielding commitment to scare them out of their ownership in equities.  Coupled with the brutal truth that it’s not a question of IF, but rather a matter of WHEN the investor experiences the tremors of a market correction (or worse, a bear market), that could very well make them question the very foundation of their financial plan. 

 Yet, these sometimes scary, but normal occurrences of corrections/bear markets, can bring out the worst in investors.  Bear Markets can turn the most disciplined, long-term, plan-driven, goal-focused equity investor into one that is fearful, shy, and hesitant and whose only desire is to hide under a massive boulder of fear.   

 But here’s the thing, the reason that Patience and Time can be the investors’ best friends, (especially during bear markets) is because that history has given credibility to those two best friends.  Take a look at the chart below, which looks at every single bear market since the end of WWII:  

- Nick Murray Interactive November 2021

As you can see patience and time endure.  Patience and time allow the investor to not only digest bear markets, but to get THROUGH and OUTLAST bear markets.  Because while, yes, bear markets have happened and WILL happen again, they haven’t punished the disciplined, diversified, goal-focused, long-term, plan-driven investor. 

 So, when your investments experience a correction/recession/bear-market/collapse/plunge/decent/nosedive/crash/catastrophe/debacle/disintegration (or any other synonym for fear that the financial press will scare into you) just remember to ask yourself a most important question:  How would that affect me in terms of my ability to pursue my long-term investment/financial plan? 

 I think you’ll find that the answer to that question, is lost upon the financial press, as they care nothing about you or your financial goals, but rather, only in your ability to click through, which is necessary for them to collect more revenue. 

 You can never predict your short-term investment results, but your two best friends, patience and time, can see you through, regardless of whether you are accumulating wealth or distributing it.