The reason why you’re a successful investor
By Jason Longshaw 12 March 2019 2 min read
What is the secret to becoming a successful investor?
Your behaviour is one of the top reasons you’ve become a successful investor. Keeping your emotions in check and sticking to your plan is the foundation to receiving better long term returns and achieving your financial goals. This past week you executed it in spades amidst some fairly significant market volatility. Especially when compared to the bull markets of the last few years.
Next week, next month or even next time the markets make you feel uncertain, remember this week when you stuck to your plan. The very successful investor Howard Marks said, “It’s not the things you buy and sell that make you money; it’s the things you hold.” You are following in the footsteps of one of the greatest investors of our time, and that’s something you should be proud of. And while you read this post from February 2018, this same message will apply the next time the news headlines scream that the sky is falling for stock markets.
Ups and downs are part of investing
Many investors are searching for “the why” with respect to the recent decline in global equity markets. Yet, just two weeks ago, few were searching for answers as to why the global equity markets reached all-time highs. Yes, it could be that higher interest rates have spooked investors. It could also be that some lunatics imploded a volatility index product to the tune of $3B. Whatever cause the media wants to link to the fall, the reality is these types of declines are about as common as the Stanley Cup Playoffs, they come on average once a year.
What do we learn from history?
What if the markets were just doing what they’ve normally done for the last century? Consider this;
- History teaches us that stocks, on average, are up roughly three out of every four years.
- History teaches us that stocks occasionally exhibit frightening volatility. (Last year was the least volatile year for stocks since 1964)
- History teaches us that on average, stocks fall by 5% roughly three times a year. (It’s been almost two years since we had a 5% correction)
- History teaches us on average, stocks fall by 20% or more roughly once every 3-5 years.
- History teaches us that average peak-to-trough drawdown in stocks over the past 70 years is a decline of 13-14% in a given calendar year. (Currently 9.9% on the S&P 500)
A successful investor embraces the above because that investor knows that uncertainty and volatility are the source of their future returns. Without it, one would simply be receiving a 0.9% return on their savings accounts.
Know that you’ve invested in a diversified portfolio that was built to suit your personality and your financial goals. Howard Marks also opined;
“The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological...” ― Howard Marks, The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor
If you are interested in trying to predict the markets for 2018, this article from Ben Carlson may interest you as well.
We’ve learned that investing based on emotion does not work - sticking to your plan does. With that said, we’re here to listen. Whether you have any questions, concerns or you’re simply looking for a little support, we do that too.