It’s crazy to think that the market peaked in February followed by an abrupt free fall into bear territory in April and now things have recovered to a point where the S&P 500 is touching new highs. We felt all of it: the ups and downs, turbulence, chaos, uncertainty and instability. I hope most of us were able to stay the course. Veering off course could’ve meant pulling back from investing in the market, thereby missing opportunities to capitalize on historically strong businesses at depressed prices. But it also could’ve meant exiting the market through a panic sale. That would be an unfortunate double whammy over the long term.
What can we learn from this experience so the next time things get crazy (could be the next few months), we stay more calm?
First, let’s define what it means to “stay the course.” To me, it means having the discipline to do what’s uncomfortable like staying put and having faith in your long term investment strategy, which means doing nothing different, even though your emotions are telling you to react.
Staying the course for me last April when the market basically crashed and uncertainty was off the charts, meant being disciplined about continuing to buy stocks. It got very difficult when dip after dip kept coming with no end in sight. I never actually had the urge to sell because of my long-standing, deep acceptance that the market could drop as much as 50% at any point. So 20% wasn’t too catastrophic for me but it still stung.
Minimizing the amount of times a day I spent looking at my portfolio was the most effective way to not think about what was happening. Instead, I spent more time getting educated on the history of previous down-cycles and subsequent recoveries, continuously improving myself as an investor while further strengthening my faith in the markets.
I also eventually pulled back on my monthly dollar cost averaging, which simply helped me sleep better at night. The rational thing to do as a long-term investor was not to rollback my cash outflow into the market but rather it was the reasonable thing to do. My decision to do so was was a result of me reflecting on whether the pain and worry of more market dips was greater than the pleasure of higher returns once the market recovered. I chose to alleviate the pain.
You may recall at the time I was also writing about the possibility of stagflation—high inflation coupled with slow or no economic growth. The messaging was consistent with my general philosophy during tough times: hope for the best but prepare for the worst. Despite many brights spots surrounding tariffs, inflation, Mideast tensions and potential rate cuts, I’ll keep saying it—we’re not out of the woods yet. But to be fair, from my perspective, investing in stocks has always been an “outdoor activity.” It can be fun and adventurous but a degree of danger always lurks, and you never know when you’ll run into a bear.
“Stay the course. When thwarted try again; harder; smarter. Persevere relentlessly.” — John Wooden
P.S. I'm sharing some investment information, but it's important to remember that what I'm providing is for informational purposes only and should not be construed as financial advice.
Happy Investing,
John
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