Last month we talked about how we ladies love talking about shoes, grandchildren, travel, wine, etc. But what about a great sale??? I think we forgot to mention that one!
I don’t know about you . . . but I love a great sale! When my kids would ask for something, I always told them “I don’t buy anything unless it’s on sale.” I would then explain to them buying things on sale helped us to have extra money to spend on other things . . . like vacations, eating out . . . and important things like investing and education, too!
Of course, here at Paul Winkler, we don’t speculate and gamble . . . so I am not suggesting that you go out and try to stock pick and market time. But I want you to think about the fact that we all love buying things on sale . . . but then when the stock market “goes on sale” so to speak . . . we don’t look at it like we do other sales. When we see that our favorite store is having a great sale, we love it and use it as an excuse to buy what we want right then and there, because we know prices will soon go back up and then that item will cost us more. But when stocks drop, we get all upset and look at it as if we have lost money. However, the truth is, we haven’t really lost money until we sell. Daily values change. They will be up and down. And sometimes, like right now with the corona virus, markets react and drop precipitously. Why can’t we think about this as a great sale instead of a loss?
If we think differently, seeing the downturn as a sale instead of a loss, and if we also realize that our portfolios are invested in many areas of the market, then we can be reassured in times of market trouble. Even more so, as long as we are rebalancing—buying what is low (i.e. on sale) and selling what is high, when the time is right—we are not violating the principles of investing by trying to time the market. When we do violate the principles of investing and try to time the market, we can end up panicking and selling when the market is low (which is really buying high and selling low). And as we continue to invest in a down market regularly, we are buying more when the value is lower (getting more of your portfolio on sale) and effectively lowering the average cost of what we paid for the portfolio.
Of course, we can’t guarantee that markets will rise, but history tells us that three times out of four, the market goes up, not down. Ninety-six percent of market gains have occurred in only 0.9% of trading days from 1963 through 2004. That means that nearly all of the market upside has occurred in around 130 days out of 41 years or approximately 15,000 trading days. Of the 20 largest percentage increase days in the stock market, every single one of them occurred after big declines.
So just try to relax and change your thinking. This isn’t a market downturn . . . it’s a sale!