If Only Investing Worked Like a Highlight Reel
Last week was busy, so I missed the Atlanta Braves high scoring 29 run game verse the outstanding pitching staff of the Florida Marlins.
I pulled up on YouTube the seven-minute and 45-second game scoring highlights.
It was amazing! It was a series of strategic and well-timed hits– sacrifices and home runs one after another. It all started with an eleven-run second inning and didn’t let up for the rest of the game.
Then my son Hudson suggested we find the full game and watch it back from the beginning, inning by inning. The game started out kind of boring.
Even the two runs by the Marlins in the top of the second inning could be considered just normal, everyday baseball.
Even as the Braves countered those two runs with two runs of their own in the second with two outs already on the board it was “normal” baseball.
Certainly, by the end of the second inning, having scored eleven runs, it was a great inning but still just baseball with a great inning and a lot more baseball to play.
Even as the Braves racked up a few more runs in the next couple of innings, as did the Marlins, it was just baseball with some great hitting.
Hudson made the observation that the players had no idea that it was going to be a record setting offensive game. They were just playing baseball.
This is similar to what investors tend to want the experience of investing to be like. They want the present to be like watching the highlights of a record-breaking quarter, year, or decade.
We learn from baseball that hitting is a game of failure where three successes out of ten attempts is really, really good! But that also means seven out of ten at-bats the hitter is going back to the dugout.
The good news about investing is that historically the wins are much better, with about 75% to 85% of annualized returns being positive years.
Many investors point to and remember their best performing years in the market. And there can be some really good periods of returns in equity investing.
Investors tend to remember the best of times in hindsight.
After the market low in July 1932 the one-year return was 124%. After the market low in March 2009 the one-year return was 68%. (https://www.fidelity.com/viewpoints/market-and-economic-insights/bear-markets-the-business-cycle-explained)
Most investors, however, want the positive years without the negative years, and even forget what happened just before the big gains. And this is NOT long-term equity investing.
In fact, there are some really, really tough years or periods that the investor MUST endure in order to get the equity upside desired over the long-term.
In the past 150 years the market always eventually rebounded and went on to new highs, but it may have been hard to believe this during some of the long-term bear markets, including:
- The 1929 Crash & Great Depression from August 1929 to May 1932 where there was a market decline of 79% peak to trough.
- The Lost Decade including the Dotcom Bust and the Global Financial Crisis from August 2000 to February 2009 which included a market decline of 54% peak to trough.
There were about 18 instances of 20 plus percent declines including the recent Pandemic crisis of 2020 and there are sure to be more in the future, but the patient investor with resolve in the midst can experience long-term gains without the potential errors that can be harmful when trying to time the tops and the bottoms that are often caused by reasons that can’t be known.
The investor always faces some big investing challenges. In the midst of the down periods the investor must remain calm and stay invested and during the up periods the investor must temper greed, maintain sound judgement, and resist temptations to time the market.
A few of the keys to doing this well include:
- Have a personalized income and investment plan.
- Maintain somewhere between one to ten years of access to cash or “safe” money.
- For growth money, own a collection of high Quality financially healthy companies.
Smart, savvy investing that builds confidence begins with number one, having a personalized income and investment plan. The next two keys serve the first and can bring great peace of mind when your investments are in a “hitting slump”.
Wealth is more than money. Don’t just plan for your future, live it right now.
Pass it on and share the insights like this that you find valuable.
“The regularity of market crashes is a reminder that patience is key to investing in equity markets.”
― Paul D. Kaplan, Ph.D., CFA Morningstar Research Director