Managing your own portfolio can be a challenge especially in times of stock market stress like now. During these turbocharged, stressor times, self-motivated, ignorant and speculative voices are turned on, creating an uncontrollable firehose of “facts” and theories to sell, usually for the wrong reasons.
Historically, risk-averse investors unfortunately have often “sold low and bought high” locking in losses and missing out on powerful market rallies. Like a diet, we are what we consume with investing. What you read, watch and listen to can lead you to make a healthy or unhealthy investment choice that may or may not help you attain your long-term financial goals.
Charlie Munger, Vice Chairman of Berkshire Hathaway and Warren Buffett’s right-hand man, once said “Investing is not supposed to be easy. Anyone who finds it easy is stupid.” Certainly blunt, but Charlie knows best given his proven mental model approach with investing that has been successfully executed on over six decades.
A broader context of market history especially during these volatile markets, along with an understanding of our own behavioral tendencies, can be helpful. As the chart below highlights, despite the 33 negative world and market events over the last decade, the stock market recovered to grind higher largely powered by increasing corporate earnings.
Like the coronavirus outbreak, it’s difficult to predict the economic and stock market decline at this stage. From an investing standpoint, focusing on the duration and not the decline can be more helpful since markets eventually mean revert and get better.
As Vanguard Group’s founder John Bogle said “Time is your friend. Impulse is your enemy. Buy right and hold tight. If you ain’t sure, diversify. Invest for the long-term. Stay the course.”
David Hone, CFA