Wars and inflation are usually very bad for business. Another drain on business is a high price for oil. Today, we have all three! A triple whammy of negative economics. No wonder most of our investments are falling fast, and many are worried about their money and their future. We want to assure you that this will not last…and to remove any doubt.
“Those who do not remember the past are doomed to repeat it,” wrote philosopher-poet George Santayana. While inexperienced investors are frightened and driven to sell equities or look for alternatives, the experienced investors are waiting and purchasing more at discounted prices. They know that with patience and commitment to long-term growth, they should be rewarded handsomely when the equity freefall ends, and investments go higher again. This is not prediction or pie in the sky optimism…it’s history and fact. Here are a few recent disasters and their stories about the time it takes to recover from a market slide and the percentage gained for investors who stayed the course:
COVID Pandemic February 2020 S&P 500 down -44%. One year later S&P 500 +76% gain. Brexit June 2016 S&P 500 down -5%. One year later S&P 500 +23% gain. Mortgage Crisis-Lehman Bros Collapse September 2008 S&P 500 down -39%. One year later S&P 500 +48% gain. US Invades Iraq March 2003 S&P 500 down -2%. One year later S&P 500 +35% gain.
For newer clients who see a lot of red in your account, we understand and empathize with you. When you are excited about starting a great journey, mapping out the destination, then getting on the road…it can be disappointing when you are snagged in traffic as soon as you start out. However, good things take time. You should be patient, believe in the road ahead and the principals of good investing. Just ask our long-term clients who have been through these downturns and have come out on top. And remember, the talking heads on TV and the media will try to titillate and scare you into watching even more. Is there any “expert” who suggested a 70% gain in stocks during the pandemic?
Beware of others who want to sell you on a better way. Dig deep for the details. For long-term growth, here are a few alternatives that you should probably NOT do and why: 1. Sell now, go to cash, buy back later. If you try this, and prices go down further, pat yourself on the back. But cash today earns miniscule interest, so you’ll need to guess again about when to get back in. If markets go up quickly, you may wind up paying more for the same investment. 2. Sell and buy something else. Okay, bonds seem safer. However, bonds have serious credit and interest rate risks. Especially now. As interest rates rise, bond prices usually go down. 3. How about gold? Yes, gold shines if you buy it low and hold it for a long time. Gold prices are high now and pay no dividends. 4. Bitcoin is the future? Talk about a roller coaster ride with even higher volatility. We doubt that crypto will feel more secure to you. 5. Perhaps a stop-loss technique or day trading program might work? Sounds good, but this is more short-term guessing. Many of these methods need daily management and the upside growth can be missed if you sell too soon. 6. Buy real estate. We know the value and growth potential in owning property. That is why we typically allocate a high percentage to real estate in our portfolios. What kind of real estate is best? Residential, industrial, medical, commercial? Prices are high today for most real estate. Do you want the challenges of being a landlord or watching companies exit their high-rise office space? Real estate prices may drop sooner than later with higher interest rates and fewer buyers. 7. Annuities are touted as “investments that go up with the market, but do not go down. If you consider this alternative, be ready to lock up your money for a decade, pay high fees and penalties, and settle for a significant cap of 2%-3% on any growth.
Do you receive a birthday letter from us each year? If you do, you know it’s the one that has the name of the President when you were born, who won the World Series that year and the Oscar for Best Picture. It also shows the prices of many items in the year of your birth and what they are worth now. Here is how a few things have appreciated over time. For instance, if you were born in 1950, a gallon of gas was 20 cents. Last year it was $4.00. That’s 20 times more! A new automobile in America back then averaged $1,750. Today, that car is priced at $28,100, or 16 times more. The average home in America then was $14,700 and last year the average home price was $270,900, or 18 times more. And the DOW Jones stock index? It was 235 then, and now it is 34,049, or a gain in value of 144 times more!
The Beatles sang, “You say you’ve got a real solution, well you know, we’d all love to see the plan”. Our plan is simple: buy good investments, diversify, and give them time to grow. In addition, our time-tested formula is easy to understand. Focus on American business and real estate and buy these when prices are low. There is no investment greater, in our view, than the strength of American resources and ingenuity.
It’s natural to worry about your money, especially when negative news dominates. The ebb and flow of your finances and the stock prices appear daily on your cell phone. The gyrations of the markets and the rise and fall of investment values can make anyone anxious and even a little crazy. Your calmness and confidence will come with taking the long view…and remembering that you haven’t realized a gain or a loss until you sell. As the saying goes, “Worry is like a rocking chair. It gives you something to do but doesn’t get you anywhere.”
Buy low, sell high.
Mitch Fisher & Ryan Fisher