Investors Need to Keep This in Their Sights

Since stock market investors can sell any or all of their investments for cash
on the spot on any trading day, they experience a lot more volatility than those
who invest in other types of assets that do not trade. If we had our vehicles,
businesses, properties and homes appraised every single day for what someone
was willing to pay with cash on the spot, I believe we would see the same price
fluctuations. Corrections and bear markets have been a characteristic of stock
markets ever since trading began more than 100 years ago. For the most part,
stock prices have taken three steps forward and one step back month after month
and year after year. In the long run, the trend on the chart for major US market
averages has been going from the lower left to the upper right.

The S&P 500 has averaged 8% compounded annually since its inception in
1924, not including dividends. Since the inception of the S&P 400 Index of US
mid-sized companies in February 1981 to the end of 2021, the average annual
compound rate of return has been just over 14%. The average annual compound
rate of return for the S&P 500 over this period has been 12.46%. Yet, whenever
markets hit a speed bump there is the temptation to concentrate so much on the
short-term volatility that we lose our perspective of what is really important.

As Janice Dorn, M.D., Ph.D. explains in our book, Mind, Money & Markets,
the reason for this is recency bias. Our brains are wired to think that what has
happened in the recent past will continue into the future. It requires discipline and
effort to understand this and counteract this. I have found what Theodore
Roosevelt said is true. He said, “Nothing in the world is worth having or doing
unless it means effort, pain, difficulty… I have never in my life envied a human
being who led an easy life. I have envied a great many people who led difficult
lives and lived them well.” Our natural default is not always the best. It takes
effort to be kind to everyone and help others. It takes effort to save money and
make money. It takes discipline to try to stay in good physical condition. It should
then be no surprise that it takes discipline and effort to be a successful investor
too.

The chart below shows the results an investor in the S&P 500 would
have achieved if they invested $100,000 in 1995 and then took four different
courses of action up until May 5, 2022.

The first course of action was if the investor sold $1,000 of investments after
each of the worst 54 days of trading over this period. The end result would have
produced $711,162. If an investor just bought and held, the portfolio value would
be worth $903,241. If an investor added $1,000 after each period of the worst 54
days of trading, the ending value would be $1,095,320. If an investor would have
been so bold, or some might think foolish, to invest $5,000 after each of the worst
54 days of trading over the last 27 years, the ending value would be $1,863,634.
This shows us how stock prices have reacted to sell-offs in the past. Please see
this chart produced by Invesco below..

Yet, whenever there is extreme downside volatility, the initial reflex of some
investors is to think of doing some selling. The facts above show how foolish and
irrational we can be if we allow our emotions to guide us instead of rational
thought. Volatility only matters if you have to sell when prices are low.

Whenever there is a major selloff, many investors who are not aware of longterm
cycles wonder if it will turn out to be a long-lasting major decline like the one
that occurred during the Financial Crisis. However, for investors like you, who
know the difference between a long-term consolidation phase and a long-term
growth phase, you can have a much better idea of what is likely to happen in the
next ten years or so.

While what happens in the short-term can be random, what has happened in the
longer-term has been remarkably consistent. The chart on the next page shows that
the S&P 500 has risen by close to 2,300% in the previous long-term growth phases
in the last century. RBC Technical Analyst Robert Sluymer points out that the year
2017 was when the 17-year cycle and the 34-year cycle were both due to bottom.
The S&P 500 fell 16% in early 2016 when oil prices had their first collapse after
the Financial Crisis. The timing of this decline ushered in the consolidation phase
for commodities and the growth phase for US equities. To repeat, according to
these cycles, US stock prices started a 17-year growth phase in 2017. Robert
Sluymer simply looks back at the past to project that the S&P 500 could reach
14,000 if the S&P 500 only rose 2,000% 17 years into this cycle in 2034. With the
S&P 500 closing at 3,900 today, that would be 3.6 times higher than where it
sits now. If history repeats, the gains for the S&P 400 could be even greater
than that. What has happened in the past suggests that there should be great
rewards for investors in the next 12 years or so. There is powerful evidence to
conclude that worrying about each selloff in this long-trend is counterproductive,
just like thinking of building an ark every time there are heavy rains is
counterproductive. What has happened in the past presents a very rosy future for
those who can accept it. As has been said by Oliver Wendell Holmes, “A page of
history is worth a volume of logic.” The charts below and on the previous page are
very informative and useful pages of history. Are you focusing on logic, emotions,
or history? What you focus on will determine how feel and respond to market
volatility today and in the years to come.

 

SAR Update

 

It has been a busy few days for my SAR team. First, we responded to a call for
an injured hiker who had to be carried out by stretcher. On Sunday, 12 team
members and I were on a full day course in Hope to train with helicopters. On
Tuesday we were called to rescue a paraglider who crashed into a tree.

If you look closely at the photo on the previous page, you can barely see his
red parasail hung up on top of the tree. We have to use a certified arborist to climb
the tree for paraglider rescues for safety reasons. We set up a dual rope system
(we always have to have two separate rope systems that can carry ten times the
weight we require for safety purposes) that is anchored to trees near the ground
close to where the paraglider is. The arborist then takes our ropes and attaches
them to pulleys above the paraglider and then down to the paraglider. After our
ropes are attached to the paraglider, we pull on the ropes to lift the paraglider up
so he can unhook himself from the lines of the parasail that he is hanging from.
He is sitting in a big black bag that they fly in on the left side of the tree below the
arborist. Once he is freed from his wing, we slowly lower him to the ground and
the rescue is over. He was not injured, which is usually the case with accidents
like this.

One of the other paragliders at the jump site on Mount Woodside took this
photo of some of my team members and I after the rescue. I am on the far right.

Have a wonderful Victoria Day long weekend my friend!