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When the stock market falls, as it has all week, there is a natural desire to search for explanations and consult crystal balls.
While the spread of the coronavirus has been a catalyst, nobody knows exactly why the market moved the way it did.
Declines like the one investors experienced this week rarely feel good.
And maybe you’re getting nervous about the economic implications of an outbreak that could force millions of peopleto shut themselves in for a while.
If so, remind yourself of the following: Stocks are how your savings fight inflation, the market is not an absolute proxy for your personal finances, and you’re playing a long game.
Time in The Market > Timing The Market
A recession or market correction will come just as night follows day.
Nobody knows, however, when it will happen.
In October 2007, the S&P500 peaked at 1549 and then began it’s long slide to its 735 bottom in Feb. 2009.
Warren Buffett “lost” 25 billion dollars. “Lost” is in quotes because he didn’t panic and sell.
Buffett didn’t try to time the market. That’s why he’s filthy rich today!
Since the bottom of 735 in 2009, S&P500 reached almost 3,400 in mid Feb. 2020.
Then S&P500 fell 11,5% in one week!! Now S&P is trading around 2954.
Here’s how that looked like in my portfolio:
As you can see from my figure I’m down -9,51% this week. In US dollars this 9,51% drop was $24,591.
Not quite 11%, but that’s because of my portfolio allocation (70% MSCI World and 30% MSCI Emerging Markets).
If you’re in your 20s and just started investing in the past couple of years, I don’t envy you. Because this week has been one of the thoughest ever!
Should We All Sell Our Stocks Now?
Market corrections (-10%), bears (-20%) and crashes (-30% or more) are a normal part of the process.
They can’t be predicted or avoided.
They are best simply ignored.
Market timing is a losers game.
Even if you guess right and this market does plunge shortly, you still have to predict how far that drop will go and when to get back in.
Most often, those that get it right sit on the sidelines while the market drops and then recovers leaving them to buy back in at higher prices.
Stocks generally go up over time.
Because stocks are not just numbers on a screen, they represent something very real.
Stocks are fractional shares of ownership in a business.
Businesses are the life blood of the economy, and the economy is an irrepressible engine of progress.
The economy is driven by business fundamentals, but the stock market is driven by investors who are driven by fear and greed.
This fear and greed pushes annual returns way above and way below the average of 10% return in the long run.
Stocks are the best way to build wealth over one’s lifetime, but there is a very real price to pay for these returns.
That price is discomfort, anxiety, and a whole lot of pain.
When stocks are in free fall (like this week!) and it feels like there is no bottom in sight, it’s normal to experience different emotions.
It’s how you behave in these times that determines whether or not you’ll be able to capitalize on the long run returns that stocks have to offer.
The Coronavirus is scary, no doubt about that…but this too shall pass.
That’s why I don’t sell anything at all.
I have a 30-year time horizon and there’s good odds in my favor that the stock market will be at a higher level in 30 years than it is today.
So what you should do is this:
Talk to someone with more experience in the stock market.
Shift a bit of your portfolio to cash if it helps your anxiety.
But drastic investment moves are sensible only when there have been drastic changes in your life, like a big new job or consequential medical news.
And that hasn’t happened for most of us this week, right?
Btw: I still believe S&P500 will reach 10,000 within year 2030. Feel welcome to disagree 🙂
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