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  • Writer's pictureAndy Flack, MBA, CFP®

Long Term Realism

One of the hardest things for anybody to do is maintain patience in the face of uncertainty. I believe that’s why economists and investment houses sell their ever changing predictions so successfully: they know people will go through great lengths to avoid the difficulty of simply being patient

in a down market. Deep down, we all know that nobody can predict the future, but people attempt the impossible just to avoid the difficulty of having to wait. I also believe that having patience is an attribute that separates successful investors from unsuccessful investors. Especially in a market such as this:

The NYSE Composite index tracks the performance of all the companies listed on the New York Stock Exchange. Since February of 2020 (more than three and a half years), the index is up a total of 6.65% as of October 26th. Even “conservative” bond investors have felt the pain. The iShares Core U.S. Aggregate Fund, which is an investment that tracks bonds in the US, is down over 22% since its high in 2020 as the Federal Reserve raises rates at a historic pace. Everything seems easy during good times, but the market tends to have a way of weeding out shaky hands.

But why does it make sense to be patient? That’s a different way of asking, “Why should we have faith in the future?". Because you will get the same answer to both questions.

I’m not suggesting blind optimism, but rather long-term realism. If you are at least 50 years old, you have lived through this:

1973-1974: Oil shock. S&P 500 decline: 48%

1980-1982: Double-dip recession and hyperinflation. S&P 500 decline: 27%

1987: Black Monday. S&P 500 decline: 34%

1990: Gulf War. S&P 500 decline: 20%

2000-2001: Dot Com Bubble. S&P 500 decline: 49%

2007-2009: Global Financial Crisis. S&P 500 decline: 56%

2020: COVID 19 Pandemic. S&P 500 decline: 34%

2022: Post Pandemic Market. S&P Decline: 25%

50 years ago at the end of 1973, the S&P 500 closed at 97.55. As of October 30th, the S&P sits at 4,135. That means that despite 8 bear markets and several additional market corrections, the index had a compound average return of nearly 8% per year even if we ignore dividends.

Over those same 50 years, technological innovation has transformed our world from one where half of the people lived in extreme poverty into one where less than 10% live in extreme poverty — all while our population essentially doubled! The increase in company values in the stock market is simply a reflection of humanity’s progress and ability to persevere, seemingly against all odds.

Patience is a down market’s worst enemy because patience always wins. As the great Warren Buffet said, “The stock market is a device that transfers wealth from the impatient to the patient.” My goal is to help you land on the right side of that statement.

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