Hi Guys,
Sometimes, we allow our long-term commitment to the equity marketplace to be stampeded by emotional behavioral biases. Overreaction to recent events is one such bias.
On MFO, that potential overreaction (or no reaction) is reflected in submittals such as some of those expressed in the recent “Anyone buying or selling at these levels?” postings. No panic here. The responders demonstrated measured, disciplined adjustments. That’s terrific. I’m not sure if all investors would display such restraint.
I’m never completely out of equities. Historically that’s not a profitable strategy. Whenever I’m tempted to do so, I resort to the following 3 statistical and graphic presentations to bolster my resolve.
The equity markets have delivered positive returns 70% of the time. For the 30% negative annual returns, about half that time, the negatives hovered near the costs (fees, taxes) of exit/reentry. My interpretation of that data is that it is prudent to be equity invested about 85% of time. The 15% exception is only when a large downturn is forecasted.
I have loved the following graphic for decades:
http://corporate.morningstar.com/us/documents/MarketingOneSheets/LicensedData/INS_LDT_OneSheet_SBBI_datafeed.pdfI show this plot whenever I talk with neophyte investors. It is effective.
I have been recently introduced to the following long-term historical display from Putnum. It too really makes the point:
https://www.putnam.com/literature/pdf/II620.pdfThe unbalance between the “green” and the ”red” portions of this graphic tells the story in a way that words can not ever duplicate. I’ve already used it in a compelling way. It’s a great addition to my internal toolkit. It reinforces my commitment to “stay the course”.
I wish you guys use it as much as I will.
Best Regards.
