As you are aware, we are huge proponents of initiating a financial plan and sticking with it. It’s not unusual, however, for an investor to become unnerved and abandon a strategy when the road is suddenly filled with obstacles. Although there is no certainty about what the future holds, it makes sense to consider possibilities in historical context.
Consider six past historical events that would have presented significant concerns yet resulted in significant opportunities:
The American Association of Individual Investors sentiment poll shows that 61.9% of investors are bearish. That is the third-highest level on record; the only higher readings were during the global financial crisis on March 5, 2009, and during the 1990 recession and bear market on October 18, 1990. In both of those prior cases, the market bottomed within a week of this extreme bearish sentiment.
Let’s consider similar events going back to 1971. These patterns should be considered before taking action. Sentiment bottoms are frequently followed by stock market upticks. Sentiment peaks are frequently followed by stock market downturns.
This point is further reinforced by the following chart:
We can see a pattern of volatility that makes one consider the inherent risk of “timing” investments in the stock market. While it may be attractive to dodge the market downturns, any attempt to do so embraces the possibility of missing out on the recoveries.
In reviewing the performance of the S&P 500 from the year 2000 through 2023, missing out on the best 10 months in over two decades of investing reduced your returns by over 50%. Is this a risk worth taking?
Have additional confidence that, for those of you who have engaged us for full financial planning, your portfolio is structured to weather any of the volatility we are experiencing. These portfolios are stress-tested repeatedly until we have a satisfactory probability of success, even without inevitable portfolio rebalancing.
To be clear, investors don’t know if things are going to go from bad to worse until they do.
In 2017, Warren Buffett wrote, “No one can tell you when these will happen. The light at any time can go from green to red without pausing at yellow.” Buffett views downturns as extraordinary opportunities. Why? Historically, it’s never been all that long before the market resumes its upward trajectory.
He continues, “Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.” “There is simply no telling how far stocks can fall in a short period of time,” Buffett wrote in his 2017 letter to shareholders. “But should a major decline occur,” he continued, “heed these lines from Rudyard Kipling’s 1895 poem: ‘If you can keep your head when all about you are losing theirs… if you can wait and not be tired by waiting… if you can trust yourself when all men doubt you… yours is the Earth and everything that’s in it.’”
As always, we encourage you to think carefully before acting and to take advantage of the resources and support that we offer at Southeast Financial Services, Inc. We view our relationship as a partnership. It can only succeed if we work together. Please don’t hesitate to contact us with any questions or concerns. We look forward to being of service to you.
Sincerely,
John Kenan
& Your Team at SFS
