As you’re all very aware, the global markets have sold off moderately over the last couple of weeks. While we don’t like to comment about short-term events, we believe this necessitates a reiteration of our investment philosophy and our thoughts on what’s happening, and what we’re doing.
First, our investment philosophy, as we’ve mentioned several times in the past, is a long-term approach, globally diversified, and at times, enhanced with either option selling or single stock holdings. But the majority of the portfolios are global, more than 10,000 stocks all-in and in all parts of the world. This strategy has rewarded us with very good long-term returns, while also reducing single market, single region or single stock specific risks. We continue to hold this thought and philosophy as it is one of the few strategies that has done very well while reducing unnecessary risk.
Secondly, while we can diversify specific risks like specific regions, stocks or sectors, no one can diversify systemic risks. Those are by default, un-diversifiable and just the risk that one takes by being in the investment markets. Nothing is without risk; even cash in the bank, while insured by governments for losses, has inflation risks or loss of purchasing power risks. Coronavirus, or any similar, unexpected black swan event like it, is an un-diversifiable risk; it cannot be known in advance and the market is now reacting to its expected future risks.
Thirdly, many clients may ask “Why not sell now and buy later at a lower price point?”. That is a great question and we wish we knew the answer too, but no one knows what the low point will be or when it may happen, no matter what anyone says. Even if they do get the low point, it’s most likely due to luck. Research, on the other hand, shows that timing the market is one of the most common mistakes that amateur investors and some professionals make while they learn how the market works. Once you realize that the market can make a fool out of even the most knowledgeable minds, you get to focus on what YOU can control and work from there.
Lastly, we can control or hope to control our behavior. For most of our clients, their invested money is for a long-term goal in the future, as in 10-20 years or even longer. A quick look at market charts and you can see that almost any long-term period, like 20 years or over has had positive annual returns in the range of 8%-10%. All those long-term periods have had their scare of the moment, either it be a health scare, market scare, terrorism, wars, recessions and even depressions. But still, a patient long-term investor has been handsomely rewarded for his persistence and patience. We ask all clients, that have any means, to invest some more during this market selloff and take this as an opportunity when others see it as a time to run. We’re here to help you and guide you all the time, but especially during tough times when everyone needs some extra guidance and maybe even behavioral coaching.
We’ll leave you with a timely Warren Buffett quote: "The stock market is a device for
transferring money from the impatient to the patient."