Stocks have had a terrible start to the year, and major indexes have officially entered correction territory (falling at least 10 %).
On top of stocks falling, there is a ton of negativity dominating headlines all over the place. To name a few, we have: Russia Starting a War in Europe, Inflation Over 7%, Fed Raising Interest Rates, Supply Chain Issues, Labor Market Issues, Oil Crossing $100 a Barrel all the while- Trying to Finally Put a 2-year Pandemic Behind Us.
With all of this happening, it is hard to stay invested and focus on the “Long Term.” It is hard because we do not live in the long term, we live in the now, as Michael Batnick frequently reminds his followers.
As all the uncertainty swirls around us now, it remains important to remember something Rob Schulz commonly says, “We do not invest in the stock market because it is fun, we do it because we have to.”
Now, as someone who thoroughly enjoys investing and studying different areas of the market, I like to think some others find it fun. However, for most investors who do not live in the markets every day to understand its intricacies, I imagine Rob’s statement certainly does ring true.
What Rob really means is if we do not invest, inflation will slowly eat away at the value of cash. Ultimately there are two options: guaranteed slow losses or a chance to win. Holding cash guarantees slow (or not so slow with 7% inflation) losses to inflation every year, with the value of your cash certain to lose the battle against inflation. Giving yourself a chance to win means you accept the fact that you are going to get paid by innovation over time. I believe that hardworking people wake up and go to work wanting to progress their own lives forward. As a result, their company’s earnings will rise, and as an owner of these businesses, over time, you will be compensated for the risk that the market could fall by 20% in a month.
With the current situation in Europe, it is also important to remember that buying and selling stocks based upon current events and the market’s reaction is a losing game. Below is a table of previous major geopolitical events and how the stock market responded.
Because the future cannot be predicted accurately, we will continue to build client portfolios for the long term, maintaining the ability to withstand drawdowns while providing the opportunity for growth. The details of the portfolio construction are not near as important as client goals, and continuing on a path to reach those goals.
As Warren Buffett’s long-time business partner Charlie Munger put it, “If you’re going to invest in stocks for the long term or real estate, of course, there are going to be periods when there’s a lot of agonies and other periods when there’s a boom. And I think you just have to learn to live through them … to everyone who finds the current investment climate hard and difficult and somewhat confusing, I would say: Welcome to adult life.”
Times like these in the market are when it is important to zoom out a bit and realize how good the last few years have been. With the great return years of 19-21, comes the ever-present risk of the market being down 10% in 2 months to start this year.
Austin Smith, CFA®