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Falling Markets – Insights From a 20-Year Veteran

Falling Markets – Insights From a 20-Year Veteran

I began my journey as an investment advisor in the waning months of 1999, just in time to experience the dot-com bubble bursting in 2000.  Then in September 2001 the markets plunged on 911, just to rise into 2002 and then shave off almost 4 years of growth.  The correction of the century, the Great Financial Crisis of 2008 saw a steady decline of 50% off global stock markets.  There was the bear market of 2011 which quickly stripped 20% off the S&P 500 and then 2015 over a few short months $10 trillion dollars was wiped off of global markets.  The most recent correction was in the last quarter of 2018 with almost 20% being taken off the markets leading into Christmas.

I have learned a few things over the past 20 years helping clients manage their portfolios, their emotions and their way through multiple stock market crashes, corrections and global financial distress.

Stock market corrections are never easy!   They are hard.  They are hard when you are 25 and you have your first $20,000 RSP.  They are hard when you are 60 and getting ready for retirement, and they are hard when you are a seasoned investor with a $3 million investment account.  The one constant through each and everyone of these market dislocations?  They represent an opportunity to you, the investor that has discipline to their long-term goals – and looks at this as an opportunity to add to their investments.

I have learned that Yes, it is true, stocks are on sale – they might not be at their lowest price yet, but for companies who have long term growth prospects, they clearly represent a better buying opportunity than last week.  Sure, they might be priced lower next week, but the important question for the long-term investor is not where they will be next week, it is will they be higher in 5 years, 10 years or even longer.  

For an investor working with an advisor it is likely that they will have a pool of assets securing their short-term income needs, and they will have a pool of assets allocated to their long-term income and growth needs.  Remember to look at your assets in those terms.  Look at how those short-term assets have helped preserve capital, ensure your income and provide your long-term assets the time to recover from the correction and grow for the future.  Even better, maybe your advisor has been rebalancing your assets and you have excess short-term assets which will help you take advantage of the “On Sale!” market.

If you are in passive investments, you will probably just need to ride out the market.  If you are invested with active managers they will be working to take advantage of the opportunities that they uncover and positioning you to benefit more significantly as the markets recover.

Don’t fall for the temptation of making a binary decision.  I am in, or I am out. You will have to make two decisions correctly.   First, when to get out of the markets, and you have likely already got that one wrong.  Then you have to decide when to get back into the markets, and if you are selling to cash today you will not likely be able to stomach buying back into the market at the deepest point.  The harm to your portfolio will not only be significant, it will be permanent.

Remember the beginning of the year?  We were basking in our results from 2019 and merrily looking at our portfolio gains in our year end statement.  Maybe we should not be looking at comparing where we were the recent market peak.   How does your portfolio value compare to the value at the beginning of the year, or where are you compared to the value at the start of 2019?  I think you will likely find that your portfolio is close to the value at the beginning of the year, and still significantly up since the start of 2019.   That is what we have to do as long term investors, focus on the long term.

Just for reference, after all of those corrections over the past 20 years, according to MoneyChimp the compound annualized growth rate for the S&P 500 has been 6.0% per year.

My final and maybe most important insight:  

I don’t want a second chance to buy that great company at a lower price. – said no one ever!