For the longest time pithy statements like these have been de rigueur for those relying primarily on advice from investment advisors whose understanding of investing is, at best, ill-conceived. One problem is that for a long time (since the early 80s at least) this simplistic passive investment philosophy has worked. In fact it has worked so well it appears many now seem to exhibit an unquestioning Pavlovian "buy on the dips" response to all market downturns. Perhaps faith in this idea is becoming too engrained when posts like...
...can be found in FWF no less...FWF being the epitomate bastion of free and open-minded investment thinking. What this apparently engrained idea is telling me is there exists an unquestioning conviction that if the overall market goes down today then it must by some magic law go up again soon. How many here have factored into their thinking, and the structure of their portfolio, the possibility of the overall market going down today, going sideways for 10 to 15 years, and only then going up again in a renewed bullish trend?When I look at what I've got over the past few weeks I can't help but sit back and smile.
A dollar invested in the S&P 500 in 1999 is only worth about 95 cents today. A passive US investor planning in 1999 to retire in 2008 is probably not very happy with this news. A passive US investor planning in 1999 to retire in 2018 may be equally unhappy. What if global stock markets do go sideways for the next 10 to 15 years? It's a situation that's been happening in Japan since 1990...
...and it's a situation that's occurred with some regularity in the US (and Canada)...
Assuming there is not a major global catastrophe we can be reasonably certain the markets will come roaring back one day, but we can never be certain when that day will be.
Today's market turmoil is happening at a moment when a large segment of the Canadian population is planning to retire, with oodles of hard earned or inherited money (which was also hard earned, but not by the current owners). Because these savers (they're not investors) do as they're told by their advisors, much of this money is passively diversified across global stock markets with the ill-conceived (see above) belief it will grow at 8% per annum. Very soon holders of these savings will get be getting their quarterly statements. Once they stop screaming many will start frantically searching for a better way to lose money. Some will discover the magic of bonds that pay 3.5% (today's approximate 10 year rate). Then the advisors will tell them a new possibly ill-conceived truth which is that 3.5% is an anomaly, that bond rates, like inflation must go up and that they shouldn't invest in bonds because when the rate goes up the value of their bonds will go down. Whenever I hear this mantra I look at this chart to remind myself of the real anomaly...
...and add some more bonds to my ladder. Unfortunately for many of these savers the choice between Tuscany or Provence may be fast becoming the choice between Timmins or Peterborough.
Ultimately members of FWF are smarter than all this...they know that selectively buying on the dips is like "catching a falling knife" but must be done, that buying and holding only works with very good quality dividend paying stocks which also must be done, and that, because of the butterfly effect, global diversification becomes less and less meaningful in a tightly integrated and interconnected world; where results, especially the negative ones, tend to get exaggerated as they spread. Sector rotation...now that's a horse of a different colour.
Even though we are so enlightened perhaps we still need to consider the possibility that, for the foreseeable future, maybe it really is different this time, that stock markets globally may be in the process of bottoming and then going sideways for a very long time. It can't hurt and may force us to collectively dream up some new ideas.