As is sometimes the case, I had already written something to be featured here today.
And then, the US stock market fell 2.7%.
(The Australian market hadn't opened when I wrote this. Futures suggest a fall of around 0.9% or so. We'll see, but won't change anything I've written, below.)
Now, to be clear, I don't really care that the US market fell 2.7%. Not because I'm a masochist, but because these things happen, and I'm used to it.
Moreover, they happen, I'm used to it, and the market has always gone on to set records for new highs, thereafter.
Yes, sometimes it takes days. Sometimes weeks. Rarely, but sometimes, it takes years.
Still, those new highs come.
And they're worth waiting for.
Because the market has gained around 9% per annum, on average, since the early 1900s.
And that period – as you know – includes a Great Depression, many recessions, two world wars, dozens of regional wars and conflicts, high inflation, 'stagflation' (high inflation combined with low growth), currency crises, acts of terrorism, two global pandemics, dozens of US Presidents and Australian Prime Ministers, multiple technological booms, as well as repeated experiences of irrational exuberance and undue pessimism.
But more than that, there have been many, many, many (I think that's as many 'manys' as I'm allowed) times when scary headlines and market volatility has led to… nothing.
Again, for all of that, the market is up around 9%, per annum, on average over more than a century.
Fair warning: this is the part where I reach for a 'volatility' example or two.
It might be the car that averages 80km/h on a long drive, even though it spends part of the journey stopped at traffic lights, or slowed by roadworks.
It might be the dog on the leash that doubles back to sniff that tree, but still gets to the destination in good time.
It might be the flip-flopping lead in a game of Aussie Rules but where the best team eventually wins.
Or feel free to substitute your own.
Just don't be the driver who abandons the car on the side of the road because the wait at the lights is frustrating.
Don't be the dog owner that expects the dog to walk forwards, in a straight line, for the whole journey.
Don't be the sports fan who leaves at quarter-time because her team is one goal behind after blowing an early lead.
Or, to bring it back to investing, don't be the person who expects only gains, and who panics and sells in fear or pain or frustration when the market takes one of its regular dips.
(And don't be the 'investor' who tries to time the market. Spoiler: someone will get it right, sometimes, because, like lotto wins, even low probability events happen occasionally when there are enough people trying. Most will crash and burn – or just miss out on the gains because they were 'waiting'.)
Here's the honest truth: the stock market has created extraordinary wealth for the investor who invests intelligently, adds money diligently, and bears the blows patiently.
That's pretty much all there is, and all you need to do, in my opinion. No, I can't give you a guarantee that the future will be the same as the past, but given more than 120 years of history, I suspect it's likely to be a pretty good guide.
Invest. Add. Wait.
There is no 'time the market' in there. There is no 'react to the latest economic or political news', either. No 'guess when the next recession will happen' or 'predict where the ASX will be by Christmas'.
But what if the market goes lower? Good question. To which I'd reply 'But what if it goes higher?'.
And given it has always gone higher, over time, which do you reckon is the better bet?
By the way, the answer to 'What if the market goes lower?' is 'You get to buy shares cheaper!'.
Think about it: Something was selling yesterday for $100, and you suspect that in 10 years' time, it'll be worth maybe $200. Today, that thing is selling for $97.30.
Do you:
a) Sell in panic because your 'thing' is trading in the market for 2.7% less?
b) 'Go to cash' in case you can buy it for $96 or $94 or $90 at some point?
c) Think 'You beauty! I'm getting a discount, now, and I still think the long term future is bright, so it's a win-win'?
My readers are smart people. I know which one they'll choose.
See the challenge in investing isn't really intellectual. Even if you get below-average returns, you'll likely be just fine if you are investing regularly and have a sufficiently long time horizon.
No, the challenge is almost purely emotional: Putting aside fear and greed. Keeping your ego in check. Ignoring the 'smart money' and the 'fast buck'. Not panicking when the market falls, and not getting carried away when it rises.
Those things are simple to say. But harder to do when your portfolio is volatile and the headlines are stoking those emotions.
But do them, we must.
Remember three simple words:
Invest. Add. Wait.
Fool on!
