Some people believe you should be careful what you think about because you tend to bring to yourself the very event. If you have been worried about a Bear Market, you might be experiencing your wish now. If you are a pragmatist, you are thinking, “These things happen, the market does not always go up, and there are advantages in a market moving down.”
Yes, there are advantages, the largest being that stocks become cheaper and dollar cost averaging will make certain you are purchasing stocks at cheaper prices. If you are not currently investing monthly, call, and we can set you up with a plan.
Much of the following information has been provided by Nick Murray. He recommended we use or rewrite the material. This is a summary of the past two years with a continuing reminder of the importance of one’s behavioral response to current conditions and the magic of compounding.
As long term, goal focused, plan-driven equity investors, we act consistently on a long-term plan. We do not react to or try to anticipate current economic/market events. We’re convinced that the economy cannot be consistently forecasted, nor the markets consistently timed. The only reliable way to capture the full long-term return of equities is to ride out their frequent but, historically, always temporary declines.
Charlie Munger of Berkshire Hathaway fame, interviewed in The Great Panic of 2008-09, said, “If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.”
The essential challenge to long-term successful equity investing is neither intellectual nor financial, but temperamental; it is how one reacts, or chooses not to react, to market declines.
It would be counterproductive to look at these past 12 months in isolation. They were, rather, the second act of a drama that began early in 2020, the precipitant of which was the greatest global public health crisis in a hundred years.
The world elected to respond to the onset of the pandemic essentially by shutting down the global economy—placing it, if you will, in a kind of medically induced coma. In this country, we experienced the fastest economic recession ever, and a one-third decline in the S&P 500 in just 33 days.
Congress and the Federal Reserve responded all but immediately with a wave of fiscal and monetary stimulus which was and remains without historical precedent. This point cannot be overstressed: we are in the midst of a fiscal and particularly a monetary experiment which has no direct antecedents. This renders all economic forecasting – and all investment policy based on such forecasts – hugely speculative. I infer from this that if there were ever a time to just put our heads down and work our investment and financial plan – ignoring the noise – this is surely it.
If 2020 was the year of the virus, 2021 was the year of the vaccines. Vaccination as well as acquired natural immunity are in the ascendancy, regardless of how many more Greek-letter variants are discovered and trumpeted to the skies as the new apocalypse.
Will 2022 be more “normal”? Will the virus wane, the world economy continue to reopen, corporate earnings continue advance, and the Federal Reserve begin draining excess liquidity from the banking system? We don’t know and it won’t change our plans; we will continue to offer the best chosen array of investments we can and expect them to march forward through thick and thin as they always have, and our clients to say in later years, “I never expected to have this much money.”
Sticking with stocks in turbulent times requires patience—but it has historically
We invite you to read “What Is the Conservative Investor” Trying to Conserve? – a piece by Nick Murray.
Louise Googins, President, Investment Advisor
Michael Googins, Administrator
Kim Rankin, Accountant
Richard Martin, Investment Advisor
Lynne Goldsmith, Investment Advisor
Brady Peat, UW-Madison Intern
Kyra Meach UW-Madison Intern