Broker Check

Elegant Simplicity

May 23, 2022
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I’ve written hundreds of articles on the “why” of investing.  The “why” of having a long-term viewpoint and the upper-hand it can give investors.  Yet somehow, I get the sense that all my messaging about the long-term view gets quickly discarded when bear markets happen.

Investors don’t like to admit it, but when bear markets happen, a title wave of emotions usually overcome them, which means that bad decisions aren’t far behind.  It’s inevitable, and I get it. 

I’m always looking to keep things simple, because if it’s one thing I want our clients to understand, it’s the simplicity of facts.  There are no facts about the future.  Facts only reside in history.  Unfortunately, everyone gets sucked in with narrative about what may or may not happen in the future, it evokes too much emotion to be simply dismissed without consideration.

 I however, prefer to keep things simple.  There is elegant simplicity in the facts: 

  • The S&P 500 Index dropped for the 7th consecutive week last week, and there’s no rule that says it can’t be eight weeks after this week, however, it's not like it hasn't ever happened before in history:

            

          Look at what happened AFTER a consecutive week losing streak.  Once again, if you're investing timeframe is measured in weeks and not decades, then perhaps speculating in the equity markets is a better fit for you.

  • The S&P 500 Index has returned 10% annualized since 1928 with an average intra-year decline of -16.8% (for 2022 its -18.7% so far).  Here the thing though, without risk of volatility, you have no potential upside gains.

           

           What we can say about this chart that is unequivocally true without interjecting emotion?  That so far in 2022 the drawdown has been greater than the average.  

  • Fact:  Bear markets happen, just as bull markets do.  They are both forever part of investing for the long-term.  The S&P 500 index experiences 1 bear market every 4 years on average.  Get used to it - it happens.  Here's what also happens:  

       

           In every single case AFTER the S&P 500 experienced a bear market, it went on to reach new highs.  Will it happen again?  I don't know, because I don't prognosticate.  I am however, willing to side with history on this one!  Bull                     markets on average last 300% longer than bear markets!

  • Which finally leads me to this quote from THE DEVIL'S FINANCIAL DICTIONARY by Jason Zweig:  

          

           Simply put - If you're not investing for the long-term, and not willing to check your emotions at the door and make good decisions in bad times, then the raw hard truth for you is that investing in not going to work for you.  

Well there you have it, as simple as I can make it.  I don't know what this week has in store for the equity markets (neither does anyone else).  I prefer to look at history, which is the only crystal ball that investor should rely on.  

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