Bear with me
It’s at times like this we ask ourselves what’s important in life. How much airtime should we give current events and how does this ultimately impact our own financial wellbeing?
Well if you read enough news, you would have spotted the stock market drop by 29.5%, over the space of 16 days, the fastest bear market in history (defined as -20% drop in a stock index). That, in isolation, would be enough to send many into panic mode, fire fighting, pulling down the shutters as the tsunami wave comes crashing down.
It’s Emotional and Personal
Stressful times indeed and it’s important to acknowledge that. It’s okay to be fearful, emotional, and nervous about what’s going on around us. What sane person wouldn’t be! That said, there is a key difference between those that choose to act on fear and those that do not.
You see for most of us, it’s not the stock market on those front pages, it’s our life savings, our cosy retirement in the sun, our hopes and dreams smoking away. It’s not a red chart reading out dwindling numbers, it’s your pension, your investments on the front page. This is deeply personal, and I’m as emotional as you are.
So why would I want to invest or stay invested in that? People are losing money, they are actively escaping the ‘doomed’ stock market. The fast response would ultimately be ‘I must get out now’, this classic flight to safety that happens time and time again. However, indulge me for a moment…
The Great Advance
The stock market is made up of some of the greatest companies of the world. The innovators, the game changers, the leading lights of society that keep generating goods and services. That’s not something that simply ceases overnight – people still need to eat, drink, be entertained, have wants and desires (some more expensive than others). The many billions will continue to consume. These great companies will continue to innovate and add value in our society. Arguably even more so now. It’s the great advance that has continued for generations, through wars, epidemics, and a whole host of other challenges, as illustrated below:
UK Stock Market (1926 – 2020) – Growth of £1
Think back to a young Apple, the now mighty world leading technology company. In early 2000, Apple stocks were priced at less than $4 dollars per share. Fast forward to 2020 and it sits in excess of $240 dollars per share! Incredible really, but this is the power the stock market has over time. What’s happened now? That big juggernaut just took a temporary haircut, along with many other great companies.
Whilst we may well have pressed pause right now, the underlying value of these goods and services still exist. It is this underlying value that we wish to capture as investors, preferably at as low a price as possible.
Hidden Value in the Sales
“As prices drop, value goes up”
As accumulators of wealth we should rub our hands with glee when the stock market experiences a deep temporary decline, like this. In simple terms, the January sales just started and you’re getting access to the world’s best and brightest companies for a fraction of their real underlying value. Essentially, your monthly/regular contributions are now getting more bang for their buck, exactly what we want to build our long term wealth.
Investor Behaviour Dictates Returns
The stock market technically has never lost money, not really. It’s the investor that loses money when they panic, choosing to sell in declining markets and fly off to ‘safety’. This is destructive investor behaviour.
With history as the best guide we have, we know these deep temporary declines are a part of the investment journey, happening on average every 5 years. This is nothing new and neither is the recovery which will take place. We can’t tell you exactly when, but we know it will happen.
To put the current situation in context, markets rise 75% of the time, and decline the other 25%, odds which are well in your favour over the long term.
What is important at this stage is to remind yourself of the goals you set. Are they still the same or have they changed. It’s your goals that drive decision making, not the media noise, the stock market, or any other factor. You are the centre of this universe so focus on what you can control first and foremost.
Summary
I leave you with a choice. Choose to follow the herd, panic, stress out and worry at events around you; or sit back and relax as the rational, disciplined, long term investor who rides through the storm, and stays the course.
Keep investing your hard earned money consistently where possible and reap the benefits over the medium to long term. We know markets will fluctuate – we just know, when they temporarily fall, we should be smiling ear to ear.
Stay the course. As ever I’m here to help.
Keith
Get in touch at team@spentwell.co.uk and we’ll keep your finances on track.