I have always found that it is helpful to ask yourself questions. Especially during challenging times. And not just any questions; smart ones and hard ones.
Why do we save and invest in the first place? What purpose does it serve? Is it just something fun to do or does it really have significant meaning?
Well I would submit that it is something very important and that we invest our hard earned money to secure a future lifestyle. A future that hopefully spans over many years. Some may also desire to leave a meaningful legacy. And history has taught us that one of the best ways to create wealth which in turn can secure this future or legacy is by owning the equity and/or bonds of well managed businesses. One challenge with this investment approach though is that many of the world’s best businesses are publicly traded entities on global stock markets. This means that over time people will buy and sell these great companies based on emotional feelings as opposed to logical thought and analysis. We are all human and this is quite normal. And right now, more people in large numbers are indiscriminately selling rather than buying great businesses. As in life, basing an investment decision purely on emotions rarely if ever serves your best interests. This behaviour invariably inflicts often non-reversible harm. Only calm, rational thought yields the most desirable results.
So this bring us to what we are confronted with today. In a dramatic and historic way, people are scared. They do not like uncertainty and neither do the markets. So what has happened to these great companies we had invested in? Well, admittedly, some may face significant challenges in the near term. Good businesses though and their smart, experienced managers often plan for tough times. They know things aren’t always going to be rosy. Some businesses are affected quite differently than others when facing unprecedented challenges. This is exactly why the brightest investment managers diversify their portfolios across different types of businesses.
So what do we do right now? Well, remember how this money is meant to secure your future lifestyle? Let me ask you one important question; will this lifestyle thing happen all on one day? No, of course not, it will hopefully be over many enjoyable years. So if people are panicking now and selling their great businesses today, the ones that have proven that they can meet whatever challenges they are faced with, then how are they going to achieve their goal of securing a future lifestyle, a lifestyle that hopefully lasts many years. Market history has clearly shown that trying to time market swings is impossible and only hurts you.
So the defense against the unknown during difficult times is for us to own a suitable mutual fund portfolio consisting of well-managed, diversified businesses that will create the most amount of wealth over the long term. Because for many of us, we will be blessed with a long multi-year future to enjoy with our families. The evidence is clear; stay the course.
I hope this adds some perspective thought to our present day challenges. As always, we will continue to be here for you and to provide timely and relevant feedback as we navigate through these very difficult times together. Stay safe, be smart and wash those hands!