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The Worst Time To Invest, Ever. Blog 166

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The Worst Time To Invest, Ever. Blog 166

1st March 2021

Paddy Delaney

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It recently dawned on me, that in the near 20 years I’ve been involved in Investing etc, that people have been fearful of record high market values. As someone seeking my services recently said to me “What Goes Up Must Come Down’ (that person had 15 year track record of actually losing money by investing according to their emotions as opposed to fact – we mutually agreed not to start working together!

This week I share some historical facts about market highs and what subsequently happens, how you would have faired by investing at the worst possible time throughout recent decades, and how the ‘end of the world’ for equities has been forecast for 40 years.

Market Highs

In my role in Informed Decisions I get the privilege of working with very successful people, both financially, professionally and personally. I like to think that my primary value to many of them is to help them achieve the long term growth that the World’s greatest companies allow us the opportunity to achieve. Some people, in my experience, no matter what their background are more than happy to invest in said companies, to happily tune out the noise, and allow these great companies to deliver the returns we seek over the long term. Some investors have that perspective. Others however feel a level of anxiety/worry when invested in this way – always watching their investment values, the lizard brain sitting waiting to pounce!

One thing that seems to trouble a lot of investors whose Lizard Brain is triggered, is when market values hit record highs. The natural response to seeing markets high all new highs is that they will have to come back down. That is the natural conclusion right? Forget about US Equities, check out the graph below that shows the growth of £1 invested in 1925:

That £1 was valued at €1.9k as of 2019 (updated 8th March 2021 – not €1.9m as I previously wrote!). You, being a smart person, will know that that invested pound (in old money) would have seen many many many record highs along that journey. How many record highs have we seen since 1925?

Taking the Dow Jones (the one market we do have such data to hand!) as an example of a similar benchmark, it has seen record highs on average of every 2 years over the past 100 years, and indeed has seen between 8 and 69 record highs in every one of those years!

Dear reader, record highs tell you nothing about the future. They purely confirm that your investment is rising. Don’t bother your head trying to decipher any more than that from it. Ever.

Oh, and just to put a final nail in this ‘record high = record crash’ coffin, here’s how the market typically reacts to market highs, here is some more facts to help you see help keep the Lizard asleep. In August 2020 they wrote;

The market has run hard and fast over the past five months, rising +56% since the March lows. For investors sitting on cash, that may produce nervousness about getting invested today (“All the gains have been gotten, and I missed the opportunity.”). If you fall in that camp, we have good news: past performance is no guarantee of future results, but history suggests that now may be just as good of a time as any to put cash to work in the market – especially if you’re investing for the long run.

J.P Morgan August 2020

 

How right they were. €100k invested in August 2020 in a broadly diversified blend of Global Equity is worth approx €111k today. Anyway, that’s not the main point here.

The main point of the great piece of factual research they share is that investing at ‘all-time highs’ is actually a good time to invest! You will see from the graph below (Blog#) that cumulative returns if you invest on market highs are actually better than investing on any day!

They use the S&P 500 between 1988 and 2020 as their base index and period of time. They found that if you invested at all time highs you’re next 1 years returns averaged 14%, your next 3 year returns averaged 50% cumulative, and your next 5 year returns totaled 78%. So dear reader, as investors why should we have any fear about market highs.

We know that ‘Mother Nature’ is a failed investor – but it is facts such as the above that we ought to remember time and time again to help us become successful long term equity investors.

In summary, if you have the money and want to invest, the time to invest is clearly ‘now’!

The Death Of Equities

I haven’t seen it being mentioned in recent times, but I can feel it coming. As sure as God made little apples, there will be another market correction in the coming few years (could be tomorrow, could be three years from now – nobody knows). When it does it might again coincide with a period of growth for some very alternative speculative asset class or other. When that happens again I’m pretty sure we’ll again see headlines claiming that Equities are dead. It will again be suggested that the greatest and most profitable companies of the World are doomed – that you as a part owner, will lose your entire invested capital, nevermind re-invested dividends and capital growth. You’ll lose it all.

When that is next suggested please do recall having read this fact. The ‘Death of Equities’ was the title of the front cover of the Business Week magazine in the US in August 1979. In that article (you can read it in full here) the authors put forward four very considered and robust arguments for why Equities were going to die, and your invested capital with it.

Yes indeed, this type of media mania was first spouted almost 42 years ago. Had you listened to that and believed it to be true you’d have taken your investments out or moved them into cash or some sort of ‘safe’ asset class. That is what you would have done.

In August 1979 the S&P was at 107.4. So let’s imagine you moved your €107,000 to cash at the time. As of March 2021, after an assumed fee of 1%, and ignoring inflation, it is still valued at €107,000.

Had you tuned out the Business Week article, ignored your mates who were scrambling to cash, listened to your investment advisor and stayed put, your €107k is today valued at €3.7m.

In closing, really it is a case of being a rational optimist – none of us know what markets or the world, or the human race will do over the short term, but we have every reason to be rationally optimistic for the decades ahead. Every reason. If you dispute that then perhaps cash is the best place for you – but I don’t fancy your financial future.

Thanks for reading,

Paddy.

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