Stay In Your Seat

“The four most dangerous words in investing are…It’s different this time.” –John Templeton


We are certainly living through very challenging times. The news on the coronavirus continues to get worse and has drastically effected how we work and live.

We’ve been through tough times before….the global financial crisis of 2008-2009, the tech boom bust of the early 2000’s and the tough bear market of 1973-1974.

All these crises have the same feel….panic, fear, anxiety and worry. Tough time for investors who get the feeling that “things might be different this time”. The cause is always different but the outcome is always the same. Markets always recover….100% of the time. Capitalism will find a way out of this mess.

Nobody knows how long it will take to control this coronavirus and for the markets to recover. Historically, the harder markets fall, the quicker and more robustly they recover.

The biggest mistake the average investor makes is getting out after severe market corrections. They sit on the sidelines and wait for things to get better before they get back in. This sounds comforting on an emotional level. Problem is it just doesn’t work in the real world of investing. The markets are always forward looking and by the time investors consider the coast is clear to get back in they have permanently missed that quick 20-25% upward move. Remember March 9, 2009. It seemed like the financial world might really be coming to an end. Just when things were at their bleakest, the markets took off and never looked back for over 10 years. Many investors never got back in.

Check out this short video from DFA on the perils of market timing: Missing the Market’s Best Days

The chart below shows equity returns after past sharp market downturns:

I’ve also included an attachment that shows equity returns after past sharp market downturns.

Hope this helps to ease some of the anxiety and keep you in your seats to reap the rewards when we get on the other side of this.