Good morning & happy Monday!
Bad times have a scientific value. These are occasions a good learned would not miss.
Ralph Waldo Emerson
These sure are challenging times, but I believe challenges provide us an opportunity to be stronger. I once heard a speaker at a conference say that challenges will either “make you bitter or make your better.” I choose to be better!
In real estate there is a saying: “You make your money when you buy, not when you sell.” What does that mean? How can one make money when they are spending money?
Well, in real estate (and I believe you will see the parallels to equity investing) if you want to make money you look for a good deal on the purchase price because that will really be a determining factor in the profitability of the undertaking. There are times in real estate when a very good purchase becomes available … savvy real estate investors will jump all over that. When going to sell, the market will pretty much determine what the price of the real estate will be.
Rarely will someone sell a property worth $500,000 for $600,000, but occasionally a real estate investor may be able to buy a $500,000 home for $400,000.
If I was a wealthy real estate investor with $10,000,000 allocated to purchase homes, I would be able to buy 20 homes at a value of $500,000 each. But if I am able to purchase the same homes at $400,000 each, I am now able to buy 25 homes with the same amount of investment.
This is a silly question I know, but … would I rather buy 20 homes or 25 identical homes for the same amount of money? Of course, I would rather have 25 homes for the exact same investment.
That is exactly what is happening with equity investments right now. When I make a purchase I now get a greater ownership stake in businesses for the exact same dollar investment. If I invest $1,000/month and the stock / mutual fund / ETF, etc. is $10/share I am able to purchase 100 shares. If the price goes down to $8/share I am able to purchase 125 shares. That is being a savvy investor! That’s choosing to be better. The market is far more attractively priced than it was 9 months ago. For buyers, that is a great thing!!!
Now, I fully understand not all of us are buyers. Many of us are retired and now living off the investment we previously made. How unbelievably stressful is it to watch one’s lifetimes savings go down by double digit percentages!!! I totally get it. But please hear me out here … we did not build a portfolio for a target date of October 3, 2022. We built the portfolio with the objective of the funds providing for your LIFETIME (and beyond) … which, Lord willing, will be many years / decades down the road. If all we were looking at was today’s value, then we have a problem on our hands. But when we take a step back and realize we are managing lifetime values then hopefully we gain something immensely valuable … perspective.
Perspective is defined by Merriam-Webster as “the capacity to view things in their true relations or relative importance.”
Because our investments are valued moment by moment, we can easily lose perspective on what we are doing when we invest. I believe perspective is exceptionally valuable in investing, especially in times like these.
In the heat of the moment perspective is so flipping hard to have. In a heated conversation we may say something we regret to a loved one. When that jerk cuts us off in traffic, we may temporarily lose wise judgement. When under tremendous pressure we are way more likely to make a mistake. This is one of those times … a time when the likelihood of making a mistake is dramatically increased. We feel the need to “do something” and that action likely leads to an outcome we do not desire.
So, what do we do? My recommendation:
Step 1: Recognize it – this is a difficult time, and I may not be thinking rationally
Step 2: Evaluate the situation through proper perspective – the world is not ending, this is a pullback which is fairly common, I will be wise and won’t overreact
I know this is likely not what you want to hear. What you want to hear is me say “this is the bottom; things go up from here.” But I, nor anyone else, will ever be able to make such a statement truthfully.
Instead, I will say what I believe we all need to hear: Stay the course, trust the plan, look at this with perspective.
Please let us know any way we can support you through this journey.