The stock market is a beautiful organism in the fact that it is cunningly balanced by market forces.
Or, as William Feather said: One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.
Sure, everyone knows that buying stock in companies in which you believe and holding that stock for the long-term is a proven method to market success, just as everyone knows that the ‘eat less, move more’ diet is a proven way to shed pounds. It’s just that everyone wants to get the same results with a lot less time and dedication in both the investing and weight loss categories.
Consider this though: Looking at a number of milestones in the Dow Jones Industrial Average we see that it fell to a low of 6547.05 on March 9th, 2009, during the financial crisis. The Dow in October 2017 (a year in which new market highs were broken 54 times by October 31st) was at 23,441.76.
That’s over three and a half times increase in value in less than 9 years. Beats a money market fund, right?
Of course, to have gotten the full benefit of that rise, you would have had to have been buying on March 9th, 2009—no mean trick in and of itself. Market sentiment was decidedly down then. But perhaps you harnessed the market wisdom of 18th century nobleman Baron Rothschild, who said:
Buy when there is blood on the streets.
And, at the risk of trotting out another old adage, hindsight is 20/20.
But let’s consider another interesting scenario: You, as an ordinary investor.
A lot of people forget that before the market tanked to its lowest point in 2009 that it was much, much higher less than two years before. You as an ordinary investor probably felt pretty good when the market peaked on October 9th, 2007 at 14,164.53 before beginning its slow descent into Rothschild-celebrated territory in 2009.
You felt even better if you’d been investing for the 18 years preceding.
From 1989 to 2007, the Dow Jones Industrial Average set new closing records every single one of those years. Some years had astoundingly high numbers of times new highs were set: 1993 with 33 record-setting closes; 1995 with 69; and 2007 with 34 records set despite the fact that markets began to fall in November and December.
But numbers are numbers. When it’s your money, the blood runs a little… hotter, right?
And if you were indeed an ordinary investor, you likely invested smaller amounts of time, consistently, and contentedly watching your money grow. Your money, hard-earned and hard invested. Nurtured and cherished over time. You’d quite easily come to think of the funds in your stock portfolio as truly your money, truly earned over time.
And then the freefall.
The way down to the market bottom in 2009 offered many opportunities to get out; all it took was a single call to a broker or one online transaction to put your money ‘on the side’ to ‘wait it out’ by converting stocks into a money market fund to avoid fluctuations.
You might have gotten out when the market slid to 14,000… you might have gotten out at 10,000… you might have waited until 9,000… or lower. Hopefully you weren’t one of the ones who got out at or near the bottom, but the fact is: for every buyer there’s a seller, and lots of people did get out then, and lots years and years of investment dollars.
But remember: for every buyer there’s a seller, and lots of people were buying then, too: That’s why the market started to build after March 9th, 2009 as demand began to rise once more.
So what if you had the intestinal fortitude (some might call it investing discipline) to have done nothing—absolutely nothing—except to continue to invest in your portfolio like you always had since 1989?
If you had, some wonderful things happened, despite the pressure from (likely) family and (almost certainly) friends to do something differently than you were doing. Let’s simplify the scenario to look at the wonderful things that would have happened had you simply held onto what you had in 2009:
Wonderful thing #1: the value of your investment is now up more than 3.5 times… at minimum… where it was in 2009.
Wonderful things #2: the value of your investment is up more than 65% from where it was BEFORE the market started to fall in 2007 (23,441.76 now versus 14,1674.53).
Wonderful thing #3: Since the market is now at a new high, every dollar you invested all along the way since 2009 is now worth more—some of those dollars substantially more—than they were when you first invested them.
Your discipline would have paid off.
Now, you may forgive yourself if you are thinking: “Yes, true. But if I’d only gotten out near the top—say when the Dow was at 14,000 or so—and waited until somewhere near the bottom—say 7,000—I could have really made some cash!
Yes, and that’s called trying to time the market. It’s not advised. Here are a couple of quotes from some noted investors about that:
- “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”
- “I can’t recall ever once having seen the name of a market timer on Forbes‘ annual list of the richest people in the world. If it were truly possible to predict corrections, you’d think somebody would have made billions by doing it.”
- “We continue to make more money when snoring than when active.”
- “My favorite time frame is forever.”
So how big can this stock market get? That’s not the question.
The question is: how dedicated are you to building your wealth over time? If you are truly dedicated, then the outlook is great.
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