The Stock Market – What a Difference a Month Can Make!
We are writing this note on February 1st, one month after a nasty selloff in the stock market leading up to and culminating with Christmas Eve. At random, we looked at the values of a few of our managed growth accounts, and they are showing significant gains from that low point on December 24th.
However, to be fair, no one should look at a gain on a portfolio which is taken from the low point of the market. Likewise, after a drop, one should not calculate the percentage decline taken from the highest point of the stock market. We are all 100% accurate when looking at history.
In the long run to be successful with our investments, we need to focus on the fundamental values of the companies we own. Spending time worrying about a short term gain or loss in valuation is useless. It is both emotionally gut-wrenching, and totally unproductive. People who build serious wealth in the stock market focus on the individual corporations they own and the rate of growth and financial stability of those companies.
“The trick is not to team to trust your gut feelings, but rather to discipline yourself to ignore them. Stand by your stocks as long as the fundamental story of the company hasn‘t changed.” Peter Lynch
When someone mentions they wish to stay away from investments ‘until things are more certain,’ it simply means they will never see the solid financial gains of long-term growth, because the reality is that “things will never be politically or economically certain.“ Growth comes through ownership: real estate, collectables, or well-chosen stocks! If you do not invest in ownership, then what are the alternatives for investment?
As Merrill Lynch used to say, ‘You can either own or loan.” In the ‘loan’ category, you may choose bonds, mortgages, CDs, etc. The safest of these is obviously short-term certificates of deposit or short-term U S Treasury instruments. These currently pay 2% or under. We seriously question this particularly strategy as a sound long-term investment plan. In fact, given inflation and taxation, we believe you will actually lose buying power over the next five to ten years.
“Remember, things are never clear until it’s too late.”
While 2018 was not a stellar year in the stock market, we have seen nothing which would alter our view that we are in a long-term secular bull market, and we continue to believe it has years left to run. This belief is based not only on history, but because we are looking at the quarterly and annual sales and earnings, not only of the companies we own, but of corporate earnings in general. The US economy and the world economy is growing. In the end, this is what truly counts, and it is what will create increasing stock valuation.
“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.” Peter Lynch*
*Peter Lynch, between 1977 and 1990 was manager of Magellan Fund, one of the best performing mutual funds. If you had invested $10,000 on the first day Peter Lynch took over and sold when he left, your investment would have been worth $280,000. (lnvestopedia)