When Life Gives you Lemons — STAY INVESTED!
The year 2020 so far has offered more than enough unprecedented events. From an investment perspective, these include the fastest bear market in history which took only 16 days (Bear market = a drop of more than 20%). A short time later this was followed by the fastest 50 day rally in history, and one of the fastest 100 day rallies in history. The markets can be spooky at times (a little early for a Halloween joke I know, but I did see costumes at Costco this past week). But seriously, these volatile times can be incredibly scary for many investors, and sadly too many of them sell their investments. In fact a study by Fidelity found that close to one-third of investors over the age of 65 sold all of their stocks during the Coronavirus meltdown*. Just think of the subsequent rally these investors missed out on. The market (specifically the S&P500) was down over 33% on March 23, but it’s rallied now well beyond where it was before the pandemic. For those thinking the rally won’t last; you could be right, or you could be wrong. What we do know is that the only way to guarantee a loss in the stock market is to sell. Keeping our clients invested is one of the most important services we Advisers provide to clients during these turbulent times, along with encouraging them to continue or even increase their regular contributions to their investment accounts.
What has been really remarkable about 2020 is that the rally has been fairly smooth, until this past week. However, we may continue to have more volatility ahead. After all we are in the midst of a pandemic and a presidential election. For these reasons, I want to share the following perspective on why it’s important for investors with long term goals to consider staying the course.
To illustrate the perils of not staying invested I can share a painful personal experience of my own regarding an investment in an athletic apparel company (LPL Compliance requires that I cannot name the specific stock but based on the city of origin (see below) and my title you can connect the dots). Back in the mid-late 2000’s my cousin in Canada told me about this great company (they started in Vancouver), and a short time later I learned that they were publicly traded. My wife has a few items from the company and loves them. If your wife is unfamiliar with the company, best to keep it that way! I purchased some stock, and later sold it for a 50% profit. At the time the stock was trading in the $20-$30/share range (adjusting for stock splits). During the 2008 financial crisis, when the market was imploding, I picked up some stock for ~$7/share. A short time later the stock dropped to $3.50/share. My investments were down 50%. I got scared and didn’t want to lose more so I — foolishly— sold. How much has the stock price appreciated since the time I sold it? Try around 11,000%. Yes, you read that correctly, 11,000%! Right now it’s $398/share! That’s more than OUCH! Sure, I used the proceeds of my sale to invest in some companies in the tech sector that worked out well for me, but I still feel that selling (like it almost always is) was a huge mistake. So take it from me, in investing when life or the stock market hands you lemons, STAY INVESTED!
* https://www.youngresearch.com/researchandanalysis/retirement-investing/close-to-one-third-of-investors-over-65-moved-to-cash/
The market gets volatile at times and it may get volatile before 2020 ends. Market volatility is just an unfortunate part of the experience with investing. But if you invest in good companies and stay invested, it works out in the long term. (Please note that diversification is a key component of successful investing and we don’t recommend a person has more than 5% of their net worth in one stock). This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
