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Staying The Course


Over the past few days everyone has been coming up to me and asking me if they should be selling all their stocks and start sitting on cash instead. Why might this be the case? Well over the last 21 days this is what the investment landscape has looked like:

  • S&P 500: -6.7%
  • TSX: -5.3%
  • Ex-North American FTSE: -6.5%
  • Emerging Markets FTSE: -8.1%

At one point these numbers were even more drastic as the markets were falling 3-4% on a daily basis. It’s quite simple why most people want to sell when they see numbers like the above. Fear is greater than greed. There is no other way to put it. When things are doing well, people pile into it and can’t wait to get more. When things turn south, they can’t seem to get out of it quick enough.

The Emotional Paradox


Just under a month ago, the masses went out in droves when stores were offering discounts for everything from clothes, electronics and toys. There certainly weren’t any shortage of buyers when things were on sale. As consumers, we gladly exchange our money for goods that depreciate in value over time, but provide us with short term gratification. Especially if what we are buying is on sale.

Unfortunately, the same doesn’t hold true for our investments. When stock prices fall 10% people start heading for the exits. At 20% off, you won’t even see a consumer investor at all. When we’re buying investments for the long term on companies that grow over time and provide us with income in the future, we balk at lower prices.

It’s completely strange to me why people think that buying into companies like Coca Cola, Pepsi, Proctor & Gamble and all the other blue chip companies making up the S&P index seems like such a bad idea when they go on sale “on sale”. We do the complete opposite and end up selling everything at the lowest price.

Did we all of a sudden stop buying orange juice for the morning? Did people stop using soap to shower in the morning? Did all the Doomers get it right that all of humanity will end next month and all of these companies supplying our goods will be out of business? It sounds extreme, but that’s what our minds tell us when we start thinking about losing money.

Long Term Investing

My advice to most people during times like this is to stay put. The real question that you should be asking yourself is whether the investment portfolio that you created for yourself is too volatile? Did you overrate your own risk sensitivity? Everyone I speak to tries to chase large gains, but ultimately they end up building a portfolio that’s too risky for their own mental health.

One has to remember that investing is a long term commitment. It’s a longer commitment than a job, a marriage or even to your kids. You should think of your investments as lasting for an eternity. Forever giving back to the generations that come after you repeatedly. How’s that for long term vision?

Let’s review just how the performance of those indexes have done over the last 5 years:

  • S&P 500: 48.6%
  • TSX: -6.6%
  • Ex-North American FTSE: 32.1%
  • Emerging Markets FTSE: 1.7%

Going back even further for those indexes that were available 10 years ago:

  • S&P 500: 51.1%
  • TSX: 6.66%\

Still positive after two massive stock crashes? What blasphemy! The world didn’t end? so how well did our parents and grandparents do over the last 25 years?

  • S&P 500: 505.1%
  • TSX: 257.8%

There’s got to be a typo in there somewhere. I must have missed a negative sign. The American empire is falling. There is no way the stock markets are up that high after 25 years. We must be in massive bubble territory. The world’s going to end any day now and the stocks are going to zero.

Are any of those familiar phrases about the stock market common to you? If they are you’re reading too much CNN and Yahoo news. There is plenty of negativity against long term investing, but statistics show mankind continues to innovate and grow. We’re not going backwards. The only ones being left behind are the ones that don’t believe we’re getting better. They are the negative ones. Don’t listen to them and enjoy seeing them in the rear view mirror.

The Boring Way

Yes, I know I am boring. I preach the way of patience to build wealth and gain financial independence. Wealth can’t be built in one day and neither was Rome. It’s just not possible to become an investor and have that kind of expectation on any investment portfolio

If, however, you’re a gambler then sure go ahead and try to chase gains using your crystal ball and ESP psychic powers. I’m sure Goldman Sachs and JP Morgan will want to study your powers. Though I still feel you have better odds picking black or red at the roulette table than picking the next Apple company that will emerge from penny stocks.

Truth be told, the greatest ally that any investor has is time. That is why it’s important to start early and stick with it. Only when you truly realize that time is what builds wealth for your future will you be on your way to achieving true financial independence.

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  1. Howto$tuffYourPig
    Howto$tuffYourPig January 25, 2016

    It doesn’t pay to hold cash. I am a long term investor who only sells if I have a bad egg. My investments more than doubled from hanging in there throughout the Great Recession.

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