#150 - The Bear in the Room - Part 2
A few additional thoughts on the bear market:
We hate going backwards. One of the main reasons this bear market feels painful, is because we had a massive run-up out of the COVID crash. If you look at a longer time period than just this year, that helps put things in perspective. At the end of 2018, VTI was trading at 120.06 (source Yahoo Finance - price adjusted for subsequent dividends). On Thursday, it closed at 187.77. Since 2018 we have experienced/are experiencing a global pandemic, Russia invading Ukraine, and a US recession, yet VTI is more than 1.5x the price at the end of 2018.
It is important to remember that the purpose of money isn't accumulation. I have found that in many cases even if the net assets have gone down the ability to reach the client’s short-term or long-term goals have not been dramatically impacted.
One thing they say to do when you are in actual bear country is to travel in groups. I believe there is value and wisdom in counsel. You obviously want to be cautious of what counsel you are allowing to guide your decision making but counsel and feedback is important. Personally, sometimes talking with my wife helps bring me back to the principles. Talk with others that can bring you back to your goals and help you maintain a long-term perspective. If you find that you are concerned about the market, call me. Let’s talk about it.
There is a known difference between investment return and investor return. This means that while XYZ may earn 8%, the average investor may earn 6%. Carl Richards wrote about this idea in his popular book Behavior Gap. The Morningstar article below goes into detail about it as well. There are a variety of reasons why the average investor could earn less- chasing performance, not investing for the long term, etc. While I don’t have research to back this up, I would imagine at least a portion of this gap comes down to how investors act during a bear market. This is an imperative time to make sure your investment behavior is consistent with your investment principles.
I know bear markets are not enjoyable. As I said above, feel free to reach out if you would like to discuss this in more detail or feel free to send me an email if you just want more charts and articles to read over.
Morningstar - The gap between investor return and investment return
“Investor behavior matters a lot, probably even more than skill.”
A Wealth of Common Sense - Getting Long-Term Bullish
“My general investment philosophy is the more bearish things feel in the short run the more bullish I should be over the long run.”
Thank you for reading!