Fear Sells, Recovery Is Silent
One blog that will be relevant forever
I am two weeks late with this blog. By now, everyone has probably forgotten what it felt like when the stock market was down. I should have published this blog two weeks ago when the S&P 500 dropped more than 5% within a few days. Now, it is almost back to its all-time high and I have not had a chance to lean into the emotions this drop evokes with stock market investors.
Nevertheless, I am writing this because I know I will be referring back to it for the next 10 or 20 years (or longer if I am still blogging). Because the stock market will continue to be volatile for as long as it exists. The only thing that will change is the way you read my blog - it might be through VR glasses by then.
Media outlets just LOVE stock market drops because fear sells.
Here’s what the top articles looked like on Google three weeks ago:
Notice the words: Bubble, Defeat, Worst Drop, Falls
Today, with the S&P500 clearly recovered, this is the news:
They fail to mention the recovery, focussing instead on whether the S&P 500 has risen too fast.
The point is that everyone will let you know when the market is down but no one lets you know when the market is up. Because panic and fear sells. And good news doesn’t.
When there is a drop in the S&P500 I get so many messages from clients and friends:
Should I sell, is a worse crash coming?
Is it a good time to buy?
Why is the market down?
Should I stop my monthly investments?
My response and philosophy remain the same:
It’s always a good time to buy. Do not try to time the market. Professionals don’t get it right and neither can you.
There is enough research to show that consistently investing will outperform trying to find the best time to invest.
Missing out on the 10 best days in the stock market will HALVE your returns:
A few things are certain:
There will be many stock market drops in the future
In the long term, the stock market continues to go up
This is what the drop over the past month looked like:
And when we zoom out 30 years, the recent drop is not even visible on the chart:
Despite this drop, the S&P500 is still up 28.75% over the past year.
If there is one thing I would like you to walk away with from this blog, it’s this:
The ability to stomach stock market volatility will enable you to earn superior returns.
Next time you see news about the stock market crashing, read this article again, and remind yourself you won’t be better off in an interest-bearing savings account.
The fact that you cannot be sure of what happens in the stock market, is the price you pay to earn better returns than someone holding their money in a savings account. So do yourself a favor, and do not let volatility upset or stress you out. If you can ride out the waves and continue to invest regardless of what’s happening in the market you will reap the rewards in the long term.
If you prefer to be “safe” in a savings account with interest, this is what it’ll potentially be like for you in the long term (based on historic S&P500 returns in ZAR):
The chart above is a smooth line because I used annualized returns (average long-term returns), in reality, it will be a much bumpier ride. But remind yourself that despite all the negative publicity and all the historic crashes, this is what the S&P 500 did historically (spoiler: it goes up):
Notice all the stock market crashes listed at the bottom of the chart. And next time you see news about the stock market crashing. Read this article again, and remind yourself you won’t be better off in an interest-bearing savings account.
Want to learn more? Read this blog where I explain why you should not be afraid of equity risk.
Disclaimer: Historic returns do not guarantee future returns. The accuracy of charts is not guaranteed. This is not personal investment advice.