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Do What Jack Said

Jonathan Clements

THIS IS A TEST. This is only a test. This is a test of our stock market resolve. Remember how you told yourself you’d stand pat during the next stock market decline, that you wouldn’t get rattled like you did in 2008-09 and early 2020? That moment has arrived.

Like any person with an ounce of decency, I’m appalled by Russia’s invasion of Ukraine and the unnecessary death and suffering that will result. But I’m also confident that the Russians will come to regret their actions. Can you think of a recent invasion that turned out well for the invader?

But while I worry about the Ukrainian people, I’m not much concerned about the stock market’s decline. It’s not because I have a crystal ball. Unlike the talking heads on the financial cable TV shows, I have no idea what will happen next in the financial markets. But I’m certainly not selling my stock funds. In fact, if the decline continues, I’ll be investing more and, if the drop is steep enough, a whole lot more. Feeling nervous? Keep these four points in mind.

  • The drop in share prices has brought the S&P 500 back to where it was in June 2021. Unless you purchased stocks for the first time last year, you’re likely sitting on handsome profits.
  • Market timing is a fool’s errand. If you sell now, you’ll be selling at 12% below the S&P 500’s Jan. 4 all-time high. By the time you muster the nerve to buy again, there’s a good chance the market will be significantly higher.
  • Stock prices fluctuate far more than intrinsic value. Including dividends, the S&P 500 is down 11% in 2022, with further losses on deck today. But the intrinsic value of corporations hasn’t fallen nearly that much—and any decline has been driven largely by rising interest rates, not geopolitical turmoil.
  • In the end, what stock market investors care about is company earnings. Ask yourself: What does Russia’s invasion of Ukraine mean for corporate profitability? Very little, I suspect.

Today, stock market investors are being tested. The late Jack Bogle, founder of Vanguard Group, would constantly exhort investors to “stay the course.” Sounds like great advice to me.

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Richard Gore
Richard Gore
5 months ago

To me ‘stay the course’ means to stick to your original asset allocation (i.e. don’t make changes based on short-term market fluctuations). It seems dangerous to suggest that investors should simply buy more whenever stocks decline as if they knew what the proper valuation of the market should be. Is the market too low now or was it too high before the decline. Of course, it is good idea to rebalance your portfolio at regularly scheduled intervals; however, to track short-term movements and make changes to your asset allocation sounds like market timing to me.

Gary Lansman
Gary Lansman
5 months ago

A great tactic to deal with the first 3 of JC’s points is to set up dividend reinvestment.

David Sayler
David Sayler
5 months ago

It is easier to buy and hold than figure out when to sell, and then when to buy.

Harold Tynes
Harold Tynes
5 months ago

Buy the dips!

mytimetotravel
mytimetotravel
5 months ago

I neither sold nor bought in 2000. I neither sold nor bought in 2008. I neither sold nor bought in 2020. This time it has crossed my mind to buy, but only if my asset allocation is out of bounds by at least 5%. I haven’t even checked it yet (I am very good at procrastination, which is often the best policy – just ask me about not selling my house in 2020!)

manager
manager
5 months ago

Ease your mind by first, having a “long term” investment horizon, and by placing the market’s behavior within the context the 4 year “Presidential term cycle”.
Over a long history ( 80+ years ), one of the most favorable periods for the market has begun in July of the 2nd Presidential term year ( 2022 ). Since 1934, the 36 months starting July of the 2nd year of the “Presidential term cycle” have produced positive returns in 20 out of 22 periods – the best 36 mo period of the 4 year cycle. https://imgur.com/a/NmzygSe

The “1st half” of 2nd Presidential term years have produced a variety of interim market drawdowns, with January 2022 producing a drawdown of minus -5.2% ( S&P500 ). Measuring the returns from the month that the minus -5% drawdown occurred in past instances, total returns through June of the next 1st Presidential term year have averaged +55% for the SP500 since 1934, and 85% for the Nasdaq 100 since 1986. https://imgur.com/a/Z70YSY1
– these during a myriad of “wars”, Fed actions, inflation / deflation, geopolitical events, etc.
Obviously, in some of the instances, the market continued lower after the initial -5% drawdown month, with an average of 10 months needed to resume the market trend back to interim “new highs”. But through patience and resolve, the market did end higher through June of the next 1st Pres term year.

Last edited 5 months ago by manager
Thomas Taylor
Thomas Taylor
5 months ago

I didn’t have any money to speak of in 1987, but I did “stay the course” during the dot-com bubble in the early 2000’s, the financial crisis in 2008-2009 and the market decline in early 2020. As Guest mentions below, it’s a good time to remind myself I’m an investor and not a trader. There are some stocks on my watchlist I’m hoping get back into buying territory though.

Jim Burrows
Jim Burrows
5 months ago

“Don’t do something, just stand there,” another famous Jack Bogle quote.

Jonathan Clements
Admin
Jonathan Clements
5 months ago
Reply to  Jim Burrows

It’s great advice — but it didn’t originate with Jack:

https://quoteinvestigator.com/2014/03/22/stand-there/

Jim Burrows
Jim Burrows
5 months ago

While Jack doesn’t appear to have coined this phrase, or for that matter “stay the course,” he sure applied both of them to investing.

Jonathan Clements
Admin
Jonathan Clements
5 months ago
Reply to  Jim Burrows

Absolutely. I knew Jack for more than three decades and he was indeed a wise man. Still, over the years, I’ve discovered that there are countless quotes attributed to famous folks — not just Jack, but Einstein, Mark Twain, Winston Churchill, Confucius and more — that simply didn’t originate with them.

Ormode
Ormode
5 months ago

Retail investors will sell, all right. Many of them have never experienced a huge down market, and are sitting on serious gains in their 401K. As the market continues to go down, they will get more and more worried, and then they will sell at the bottom. This will produce irrationally low stock prices. Then the sharp guys will step in and start buying.

R Quinn
R Quinn
5 months ago

All I can think about is those folks with 401ks waiting to go in their account this morning and move out of stocks into fixed income.

Ormode
Ormode
5 months ago
Reply to  R Quinn

These accounts usually trade once a day at the 4 PM closing price. If you put in your order in the morning, you are selling at the 4 PM price but youhave no idea what that price will be. The fund you are selling will have to start dumping stocks tomorrow morning, not today. So stand by!

IAD
IAD
5 months ago
Reply to  Ormode

This didn’t age well! 🙂

Guest
Guest
5 months ago

Thanks JC for this reminder. Wall Street wants us all to be tactical instead of strategic. I remind myself on these occasions that I’m an investor and not a trader so I will stick with my long-term investing plan.

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