There has been a constant theme in this space over the last month or so – hang in there, long-term assets are cheap now, start thinking about the other side of the valley.
A friend and fellow entrepreneur, Thane Stenner, posted an interesting piece last week. It comes at those themes from another direction and adds some numbers into the mix.
Dear Private Investor,
As Warren Buffett [often] states, he doesn't try to predict the very short term direction of the stock markets.
What he does do, as we do as wealth advisors, is try our very best to provide perspective on the markets, especially at extremely volatile times, such as today.
We have summarized a Key research conference call from yesterday, featuring Nick Murray, a Financial Advisory Veteran of 45 years. This call was arranged by Mackenzie Financial. I wanted to summarize for you as it provided an excellent historical perspective on Bear Markets along with "4 Great Truths" about them (a Bear Market is defined as a market decline of at least 20% from peak to low).
4 Great Truths:
1) There have been 13 Bear Markets since the end of World War II (WWII).
They are a normal, natural, organic part of the never ending longer term uptrend and ensuing cycle that create excesses in euphoria and despair.
2) They are Necessary/ Essential.
For investors to receive the significant benefits of the longer term premium returns that the global stock markets have produced, well in excess of bonds, T-Bills, GIC's, and even Real Estate, they need to not only accept but embrace volatility (which goes both ways). An investor would not be able to earn significantly higher returns over the mid to longer term (5 years +) otherwise.
3) Bear Markets are as common as "Dirt".
If you plan on being an investor for another 20 years for example, you are likely to experience another 3-4 Bear Markets in between. In fact, since WWII, the 13 Bear Markets have averaged a decline of 32%, have lasted between 15-16 months and have always had a "crisis du jour" to cause each. Thirteen in 63 years means one every 5 years on average. Basically like going through turbulence on a longer flight... a bit unsettling on the way to your destination, but comes with the mode of transport.
4) You need to realize that Bear Markets are a temporary interruption of a permanent uptrend.
In the 1946 Peak for the S&P 500, the index was at 19.3. Yes, you read that right, 19.3. Today even at the depths of the current Bear Market, it's at 902 as I write this. That means a dollar then would be worth $45 today.So the facts speak for themselves. The Markets do go up significantly over time. The real question is whether an investor can hang on during these temporary declines, and even add to their high quality holdings at "fire sale" prices.