We do not dismiss or take lightly how market periods like this feel when we’re in them. In a word, terrible. Even so, we are as confident as ever that optimism pays over the long run when it comes to investing.
We’re in good company with this conviction. Famed investor Warren Buffett, in his nearly fifty years of annual letter writing for Berkshire Hathaway, has often reminded investors of this during challenging times. In his 2008 shareholder letter, written during some of the darkest days of the global financial crisis raging at the time, he confidently wrote that our best days lay ahead. That just sounded plain crazy at the time. Though it was hard for most to see, we were indeed on the doorstep of a decade-plus of spectacular investment returns.
As we now find ourselves in the midst of the 15th bear market for the U.S. stock market since World War II, we hope to renew your confidence and optimism. We firmly believe it’s warranted, even with a sober and clear-eyed assessment of current circumstances. Specifically, our long experience in the market emboldens us to offer the following comforts:
- This is temporary – As surely as bear markets come, they go.
- Over time, a disciplined approach to investing in good assets can win – though not in a straight line.
- A coordinated planning and investment playbook is key.
This Is Temporary
Bear markets—defined as a drop of more than 20% in the broad stock market—are not uncommon. Since WWII, we’ve had one every six years on average in the U.S. Their lengths vary but on average they usually takes one to two years to play out. Tops and bottoms are very difficult, if not impossible, to predict and the market usually moves very quickly around them. And over the last 90 years, the market has shown positive returns a large majority (>75%) of the time.
Though we’re under no illusion that history is necessarily a predictor of the future, we believe history is useful as a guide and our experience leads us to believe that maintaining a disciplined approach to investing in good assets at reasonable prices is a winning strategy for the long run.
Which leads us to our next point of comfort…
Over Time, a Disciplined Approach Wins
We recently observed (and lamented) the reality that in both life and money, the road higher rarely comes in a straight line. A remarkable set of facts about U.S. stock market returns—as measured by the S&P 500—over the 65 years from 1957 to 2021:
- Average annual return: 10%
- Number of calendar years where the annual return fell between 8% and 12%: only six!
The reality is that 90% of the time, on the journey to realizing our 10% annual returns over the past six-plus decades, we were outside of a reasonable range of “average”. We simply spend a lot of time either well above or below average. In our view, this combined with the difficulty of precisely knowing when we will get which outcome is a good reason to stay committed over the long run to a consistent and disciplined approach to owning good assets (namely companies & real estate) at reasonable prices.
And as we previously mentioned, the value of good and growing businesses along with well positioned real estate tends to be up significantly more often than it is not. This is, we believe, a compelling reason for long-term optimism.
However, in navigating the reality of the up and down nature of the road to long-term returns, it is of critical importance to insure that our investment strategies are carefully aligned with the goals and objectives we set out to achieve.
A Coordinated Planning and Investment Playbook is Key
If the temporary “downs” are a necessary feature in our up and down journey toward achieving the long-term growth we seek to achieve our goals, we must do our best to insure they are indeed temporary. Selling good long-term investments when they are down makes losses permanent. This is where good planning, in close coordination with investment implementation, is critical.
At Tschetter Group we must, and we do, strive to work as a team to carefully consider how we tailor each client’s investments to strike the right balance of long-term growth and near-term stability and liquidity. In practical terms, we work to position portfolios so that we can ride out the occasional turbulence with minimal long-term damage.
Good communication with you is paramount. That’s why we’re committed to staying in touch in both good and challenging times on this journey in life and money. Please don’t hesitate to reach out if your goals change, you have questions about your investments, or if there’s any way we might be of help to you or someone you know.
We’re all looking forward to the next time we’ll connect.