Investing can be brutal at times, but don’t give up now

Missing out on the market’s best days can be costly.

A man holds his head in his hands, despairing at the bad result he's reading on his computer.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on All figures quoted in US dollars unless otherwise stated.

There's no way to sugarcoat things. The past few months have been absolutely awful for investors. The S&P 500 Index has plunged a gut-wrenching 18% so far this year. Multitudes of stocks have plummeted even further from their peak. There's no end in sight to the selling, given all the headwinds currently facing the global economy. 

Difficult periods like this can make even the most seasoned investors want to throw in the towel and liquidate their portfolios. However, I'd like to encourage you to press through this challenging period. I want to share my investing story and some data to give you some hope that this, too, shall pass.

I learned to invest the hard way

I was only a few years into my investing journey when the Financial Crisis upended the global economy and stock market. Before that event, my experience with stocks was that they went up. That had my confidence swelling to the point of overconfidence.

So I made some really reckless investment decisions as stocks started to crash. I'm lucky that I didn't completely wreck my portfolio. I started buying stocks just because their price went down a lot. I focused on the stock price and not the underlying business. One of the most foolish (and I mean really small "f" foolish) moves was to buy call options on investment bank Lehman Brothers on the firm belief that the government would bail them out. Suffice it to say; I lost a lot of money on that gamble.

As my portfolio dove deeper into the red, accelerated by my ill-timed shift from an investor to a trader, I got to the point in early 2009 where I had to take a break from investing. However, instead of liquidating what remained of my portfolio, I just stopped making changes. I took a month off from buying and selling stocks and reset my strategy.

I learned a few important lessons during this challenging time:

  1. Forget about the stock price; focus on the business: I stopped buying stocks because they had low price tags and focused on investing in companies that I believed could thrive over the long term.
  2. Credit is crucial: I started putting more emphasis on a company's balance sheet, focusing on those with investment-grade credit ratings because that gave them more financial flexibility to survive tough times so that they could thrive in the eventual recovery.
  3. Cash flow is king: This lesson goes hand in hand with having a strong balance sheet. Cash flow gives companies the funds to expand when credit is unavailable.

As tempting as it was to throw in the towel on investing in 2009, I'm so glad I didn't. That challenging period made me a better investor, and my portfolio's value has grown by leaps and bounds over the more than a decade since the Financial Crisis. While, like most investors, the value has fallen quite a bit from the peak of late, I sleep well at night knowing that, for the most part, I own a portfolio filled with several high-quality companies with strong balance sheets and cash flows that will weather this storm and thrive on the other side.

These numbers urge you not to give up

I want to pivot from my story to share an eye-opening chart I recently came across that shows the power of persevering as an investor. When stocks are in freefall, it can make an investor think about liquidating to avoid further damage. However, historically some of the market's best days have come during these periods. Investors who give up on the market could see their returns suffer.

DecadePrice return of the S&P 500Return excluding the 10 best days per decade
Since 193017,715%28%
Negative percentages are denoted with parentheses.

Data source: CNBC and Bank of America

The middle column shows the total return earned by investors over decades. Over the long term, investors who kept their money in the market earned a staggering return, despite enduring their share of bear markets. However, if an investor liquidated their portfolio and went to cash, they ran the risk of missing out on some of its best days. They'd earn much lower returns if they were on the sidelines during the 10 best days each decade.

Stay the course

These are definitely challenging days to be an investor. However, please don't give up because they should eventually pass. Instead, use this time to reevaluate your investment strategy so that your portfolio can thrive again when the market eventually recovers.

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Matthew DiLallo has no position in any of the stocks mentioned. Bank of America is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

a water tap is turned on and showering out banknotes into the open hand of a woman below it.
International Stock News

Companies with high free cash flow margins and high free cash flow yields massively outperform the market over time

What matters for long-term investing success.

Read more »

Woman on her laptop thinking to herself.
International Stock News

Is it time to load up on beaten-down growth stocks (like Tesla)?

Here's a look at some issues facing both the markets and one electric-vehicle maker in 2022.

Read more »

A woman in business attire sits at a desk in an office situation holding a red apple in her hand and smiling.
International Stock News

Why Apple stock climbed on Wednesday

On a mixed day for Wall Street, channel checks reveal some positive developments for Apple investors.

Read more »

amazon delivery
International Stock News

Why Amazon stock rose while the market slept on Wednesday

Tech stocks might just be waking from their summer slumber, and an analyst pegs this one as a top pick.

Read more »

woman watching netflix on her phone
International Stock News

4 potential winners from Netflix’s advertising plans

Netflix needs a big partner or two for its forthcoming ad-supported tier.

Read more »

tesla model 3
International Stock News

3 reasons Tesla could soar after its stock split

The electric vehicle manufacturer is firing on all cylinders (not literally, of course).

Read more »

A disappointed man slumps in his chair and holds his head while playing an online game
International Stock News

GameStop is in trouble — and it’s not because of Congress

The threat of a slow-moving Congressional committee is not the stock's most pressing worry.

Read more »

A man stands on a ladder in a stripey one-piece swimsuit, ready to plunge into the freezing water through a hole in the ice.
International Stock News

Why Meta Platforms plunged on Tuesday

On a bad day for tech stocks, Meta did even worse on the back of a pair of negative headlines.

Read more »