As a cruise ship captain would advise, the best cure for seasickness during rough waters is focusing on the distant horizon. Long duration stock investors should heed the very same advice, and this September and October has so far proved to be a very fitting illustration of the inherent volatility of stocks. As the captains of our clients’ financial plans, we have prepared for times like this since the very first conversation, first meeting, and first dollar we humbly invested on their behalf.
How do we prepare? The first step is acknowledging and understanding that stocks (and bonds) will temporarily decline and value. Bear markets happen. A temporary market decline of 20% or more happens at least once every decade. They have often occurred two or three times in a decade. Legendary investor Sir John Templeton often reminded investors that bear markets are inevitable, and nobody can reliably predict their depth or duration. Since the advent of financial news networks, a cottage industry has sprung up of pundits forecasting the direction of markets in the next three, six and twelve months.
The fact that the stock market has compounded long duration investors such abundant wealth yet remains utterly unpredictable in the short term has perplexed very smart people for over a century. The fact that the stock market has compounded long duration investors such abundant wealth yet remains utterly unpredictable in the short term has perplexed very smart people for over a century. And we can assure you that it will for centuries more. Philosopher Jean-Jacques Rousseau would have made a great investor: “Patience is bitter, but its fruit is sweet.”