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Corrections Be Healthy
Being 25 years of age, I find this equally as exciting as I did in March 2020. No idea when it ends, no idea what the stock market will do in the next few days, weeks, months, or quarters, but the stuff on my watchlist is drifting down to attractive prices, after waiting so long. Not rushing in yet.
Most of this year, I have been buying indices, consumer discretionary, stable value-esq stocks, and keeping away from commerce, payments, and major covid beneficiaries as their narratives reset to reality.
Corrections, and bear markets, are never nice, but they are necessary to reset expectations. And as meme-like, as it might be to suggest, in a bear market, forward IRRs also get a healthy reset in moments like these too. Great companies don't suddenly become terrible becomes because their share price is cut in half.
A study has shown the average drawdown from ATHs from 1950 in the S&P 500 is ~13%, roughly where we are now. From 1928 to 2021, in 59 of those 94 years, there was a double-digit drawdown during the year. 58% of the time, when a double-digit drawdown occurred in a year, investors ended the year with a gain. 40% of the time, the gain was double digits by the year’s end. I'm not suggesting that happens this year, but this stuff is par for the course.
Caveat, I say this with a ~6% cash position that is growing as I continue to build cash at a greater rate that I reinvest. Don't doubt that changes at some point in the future.
I might be the only nerd that actually read a book before I started investing; but Warren Buffet was my primary mentor. He had me absolutely ecstatic waiting on a market crash. I was so excited in March of 2020 I took 3 consecutive days off so I could watch the destruction in real time. But when I started investing around 2012, all the 5 year charts were still showing 2008 in the timeline, so I saw how every strong company recovered after the recession. Between Buffet and the obvious evidence of history repeating itself, no time is more fun for me than these, knowing with absolute certainty that it gets better.
@wall_street_deebo yep, same. First book was a Graham book, followed by reading Stress Test, and a lot of other books about meltdowns and what followed.
@wall_street_deebo Loving that you took 3 days off work to watch the market like a spectator sport! That is nerdy in the most delightful way. 🤓
Well said. Investors would be well served checking their portfolios less frequently, perhaps once or twice per year even.
Taking out a loan as we speak
@couch_investor a $1 one because no bank wants to loan a potato anything these days...
@couch_investor I told my brother I was considering margin trading for the first time🤣
Thank you for some reassuring stats, Conor. I think a lot of people needed to hear that today. Great post.
@jennymanydots thanks Jennifer, as fashionable as it might be to post doom, always good to remind one’s self that these things happen.
I love the very first line. I would say most of the investors here are fairly young and now is a great time to get buying.
Market always comes back eventually.
Dont forget it, though.
Thx for providing the stats as well. They really add extra value to the note :)