The stock market has had a flyer in 2019. This has been the best years since 1987 and proves that there is still some resilience and optimism in the markets after an extremely volatile year in 2018. Even with the recent volatility, in euro terms, the S&P500 is up 22% year to date, with the Eurostoxx up 15.95%. There was a rush to sell back in the last quarter of 2018 as commentators and analysts rushed to call the top of the market and tempt investors into timing their investments. Anyone who listened to these doom merchants has missed out on a very quick but dramatic recovery. Market timing is fraught with danger, whether in the short term like this past few months, or even over very long time periods.
15th June 2007. We pity the poor sap who invested in the US stock market on that day. This was the day the S&P500 (the index of the largest 500 companies in US), hit its peak, before plunging over 50% in the following 18 months. Anyone who invested $100,000 on this date saw their fund fall to $48,400 over this period!
The stock market hit the bottom of this crash on the 9th March 2009. Many investors had already run for the hills at this stage, cashing in their investment and moving to safer holdings. Anecdotally we heard that Irish Life had their record level of switches out of equity funds in March 2009.
From a behavioural standpoint this is understandable, as the world was in a very bad place. There was the threat of another ‘great depression’, investment asset values were collapsing, and banks were in serious trouble.
So, let’s race forward to today. How has that poor sap faired since the crash?
If they had the patience and courage to hold tight, Tuesday 26th September 2017 was an interesting milestone. The value of their initial investment had DOUBLED. Their $100,000 hit $200,000! It is now over 10 years from the bottom of the market in early March 2009, and the US stock market is actually 190% above the previous peak. Even more interestingly, it is up over 400% in Euro terms since the markets started to recover.
Buy and Hold
Which all proves the old adage that ‘time-in’ the markets, and a ‘buy and hold’ strategy, can still work. And that is a maxim particularly relevant right now, with a choppier market ride than we have seen in a while. Given increased levels of volatility, we are tempted to time the markets, sell out and wait for stability.
I have not had many clients call me, as I redirect my attention, and the attention of clients, away from market commentary to their long-term financial goals. As Warren Buffett is often quoted as saying “No-one wants to get rich slowly” and many investors I meet are constantly on the look out for the next big thing and get rich quick schemes (Bitcoin, Leveraged Property etc.).
Seasoned investors don’t get nervous when the market declines. Often, they get excited by the prospect of buying shares at cheaper prices. Recently though, there hasn’t been much to get excited about, because valuations remain rich.
Trying to time the markets is almost impossible and relies largely on good luck. As our earlier example shows, even the worst market timer, who invested at a significant high, has still achieved extremely strong returns over the past 10 years. We may very well be at another ‘top’ now, with Central Banks and President Trump driving markets ever higher. No-one knows, and very few will be able to call a top with any certainty.
What we do know though, is that if you have a long enough time horizon (a pension, for example), and are willing to stick with your long term plan, and not be influenced by short term financial trends, investment markets can give you strong returns, regardless of timing.
S&P 500 (USD) 15th June 2007 –4th October 2019
David Quinn is Managing Director of Investwise, a full service financial advisory firm and leading independent pensions advisor, uniquely offering a fee-only business model to better serve the interests of clients. To find out more go to www.investwise.ie