With this week’s massive sell-off, the major markets have dropped between 20 and 30% Many of our favourite businesses, and ones we know many of you own along with us, are down even more than that.It is not only the amount that we are feeling. It is also the velocity. According to The Wall Street Journal, this drop occurred over the fewest days of any correction of the past four decades.
As fellow investors, we feel it with you.
We feel the euphoria when stocks rally like they did in 2019 and for most of the past decade. And we feel the uncertainty — the emotional tug — when they fall 10% or more.
What is Going On?
The news about the coronavirus driving the sell-off is fluid and developing. There is much we do not know about the virus itself and how it spreads, but we do know that many companies have said that it will cause near-term disruptions and slowdowns. With this much uncertainty in the air, driven by headlines, stories, and our own fast-spreading fears, stocks are showing some wariness, especially coming off a booming 2019.
We are long-term investors, so we focus on just that: the long term. That means more than just a quarter or even a year. It means many years. But we are not ostriches, either, putting our head in the sand while the rest of the world goes on around us.
Instead, we take a business-owners' mentality to investing, backed by more than two decades of success and data that helps us make better decisions in good times and bad. Like any pandemic, the coronavirus is serious. We need to take it seriously. And like all good investors, we need to be prepared. As you are reading the news, considering your investment options, and planning on making decisions, keep these in mind. Stocks are volatile in the short term, but over the long term, returns are far more positive than negative.
During a single day, it is a coin toss whether your stock goes up or down. Over a year, the odds improve so that two-thirds of the time you will win. Stretch that out to three or five or 10 years, and your chances to make money skyrocket. In fact, in almost 9 times out of 10 over the past 100 years, stocks make you money over any 10-year period.
Businesses grow. Stocks go up. Over years, not always quarters.
Yet stocks do indeed fall — sometimes dramatically — but they recover.
Looking at past data, outright market meltdowns occur once every 10 to 12 years or so and last six to twelve months. The silver lining is that corrections tend to snap back within about four months, according to Goldman Sachs data. Furthermore, keep in mind that over time, stocks spend 3 times as much time going up as going down. We just need to get through the down days to make sure we experience the ups.
Think like an owner, not a trader.
We do not trade tickers; we invest in companies — great companies with business models that we believe are transforming their industries and making a difference in the world. Our favorite companies have loyal customers, growing markets, and unique advantages over their competitors.
Stay invested in those companies that can deliver healthy sales and earnings growth over the next three, five, and ten years. Do not let the daily or monthly gyrations in their stock prices scare you off. Be patient and remember why you are invested.
Come 2025, you will be glad you stayed with them.
We do not have a crystal ball to say stocks will not go down further from here by midyear. They very well could — or they could rally. What is important is that you both understand the market volatility potential and commit to investing through it.
Keep in mind that more than half of the market's best days come within just a few weeks of its worst. Trading in and out around market volatility often proves futile.
It takes courage to hold on and keep investing in turbulent markets.
We are here to help you find and maintain that courage. Rest assured, it pays off in the long run.