J.P. Morgan put together the following chart that looks at the past 32 years in the stock market to show what it looks like to invest when the market is at all-time highs. It shows that investing at all-time highs does not necessarily mean you missed the market or that it must be a losing trade. All-time highs sometimes mean more highs ahead, after all the market goes up over the long term. Most of the time stocks go up. There were plenty of times where you could have picked “the” top and had to wait to get back even let alone make money. You may never know in advance which one is the top.
So, if you are saying you can’t invest or stay invested now that the market is at all-time highs the data doesn’t support that, but I can understand that feeling. Its also one of the many reasons we do not invest based on feelings.
Let’s say you want to wait until there is a correction or a market crash. First of all, it won’t be too great a feeling waiting for the market to come down, that might come along with another black swan event, high unemployment, or one of the many other reasons stocks could correct. That event might lead to a destabilization in your own life that may hold you back from being able to invest whether that’s just psychological or you need that money now to pay your bills.
There is also a good chance when the market is down 10% or 20%, you wont buy. It is very easy to look back on February and March of 2020 and think what an opportunity that was. The data suggests people were selling, not rushing to buy the “fat pitch” it now looks like in hindsight. When the market is going down investors often think it will keep going down and try to just wait a little more.
Another reason its not a great strategy is since 1965, there have only been 8 drawdowns of 20% or more, once every seven years on average. You can spend a long time waiting to buy if your strategy is wait for something catastrophic.
There are many ways to invest. Waiting for the world to end is not one of them.
2020 was a reminder of the simple lesson that it is time in the market, rather than timing the market that is important.
One day, Jeff Bezos, the founder of Amazon, asked Warren Buffet, “Warren, your investment thesis is so simple, and yet so brilliant. Why doesn’t everyone just copy you?”
Warren Buffett simply replied: “Because nobody wants to get rich slow”
Golf is a simple game. Just hit the ball straight and get it in the hole.
Staying in shape is simple. Eat a healthy diet and exercise. However, between 1989 and 2012, Americans collectively spent more than $1 trillion on weight loss solutions. The return on that investment: obesity in the United States grew by more than 50% while extreme obesity doubled.
Simple does not mean easy. Sticking to a discipline is not easy but it is necessary.
It was not easy to stay invested as we did throughout this year. It may not seem easy to invest going forward as there will always be a new election, geopolitical or economic issue in front of us.
As we embark on year 2021, you can expect volatility in the United States and global markets, as well as political instability. This means, that information will be distributed in rapid fire and much of this information may be incorrect because it is embedded in ideology as opposed to facts. This is what you can expect from us. We will remain disciplined to our research inputs and the investment disciplines of our Global Balanced Advisor, Growth Equity Portfolio and Diversified ETF Portfolio throughout both good and bad market periods.
The information contained herein was obtained from sources considered reliable. However, its accuracy or completeness cannot be guaranteed. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.
La Ferla Group does not provide legal or tax advice. You must consult with your legal or tax advisor regarding your personal circumstances.
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Regis R. Dillon, CFA, CFP®
Chief Investment Officer