Anyone watching the market this year thinks we are seeing a wild ride. Part of that is just getting used to high numbers. When the Dow was 11,000 about 10 years ago, a 200-point loss was bad. It was 2.7% of your total. Where the Dow is today over 31,000, a 200-point drop is less than a 1% loss.
We have had some volatility this week. It is stocks. They go up and down but up always wins. Over the last 21 years we have had 6 down years. That’s pretty good except when you have to sit for a long time and watch your portfolio. Suggestion: Don’t watch! The average bear market is 9.6 months. That’s significantly shorter than the average length of a bull market, which is 973 days or 2.7 years.
However, the “peak to trough, back to peak” is about 4 years. The worst we have seen is the 3 back-to– back bear markets in 2000, 2001, 2002. How did we manage to stay put when others left the market in droves? Those that stayed put reaped huge amounts of wealth. Remember, the market should be measured in Decades not Days. “The stock market is a device for transferring money from the impatient to the patient” That is probably my favorite Warren Buffett quote.
The good news: You may have done much better than the market in those three years. Of course, you could have done worse. How can you make sure you make money when a market crashes and then works its way back up? 3 things: 1. Stay put. 2. You can still collect dividends. So, while stock prices may remain the same, you make income on the portfolio which will reinvest in low-priced shares due to the bear market. 3. Always add. Your returns can be greatly enhanced when you buy low. Bear markets offer an opportunity to pick up stocks that are “stupid low.” You do this either by adding chunks of money periodically or just sticking with your monthly contributions to your 401k or other plans.
To call someone for extra money during a crash, unfortunately, is the hardest time for people to do the obvious thing and add money. If you loved a company at $100 a share, you should be in a rapturous, head over heels love when that stock goes to $50. You have to fight your brain on this. Like you do with all things you buy, you like to buy them low. Hitting the absolute bottom is not at all necessary. Buying when the company is a great value is the only thing you can control.
Cash is always good to have around. But remember I won’t keep your money in cash. If I did you would be paying fees on cash while making very little. Saving and investing are apples and oranges. You need to save the cash.
Covid seems to still dominate the news and probably will for a couple more months. We are vaccinating 2 million people a day. We have 93 million vaccinated and 30 million immune from having the disease. 123 million total immune. Our population is 330 million. In a 70 days we would have another 140m vaccinated and be done by late May or sooner. That adds up to 80% vaccinated. Herd immunity would be reached. But the headlines read, “President Biden says vaccines should be ready for all in the summer, and that we have 600 million coming in mid July.” Dr. Fauci says we will start to see relief this fall. I guess because they are so smart they were allowed to skip those arithmetic classes. B
Many Covid battered stocks, like airlines, cruise companies and oil are already up 40% or more. Many have doubled or tripled since the bottom. And only now do we hear the talking heads saying to go out and buy those companies. They are always late. They are looking in the rear-view mirror. By the time you hear it on CNBC it is too late. I call it “barn door” investing because many people want to add buy after the barn door closes (and gains) have been shut out. Don’t do it!
Next time: “You’re my advisor, why don’t you get us in and out of the market at just the right time?”
See you soon,
Craig