A good time to think back!

If this is just your first or second time going through one of these sector rotations/panics, it would be a good exercise to think back to Monday March 8th, when our stocks hit bottom after plunging in February and the first week of March.

Think back to then when you were thinking “Should I get out of these overpriced growth stocks before they plunge even further, and switch into value stocks and airlines like like everyone else?” Try to remember how scary it was back then. Tuck that away in the back of your mind for the next time.

My portfolio hit down 17% ytd on that Monday (I was at 83% of what I started the year with). Today it’s at 103.7% of where it started, so it has risen 25% since March 8th (103.7/83.0 = 1.25). If you are in the same kind of stocks as I am, I’m sure your results have been in the same order of magnitude. Aren’t you glad you didn’t get scared out?

The trick is in not panicking if all the news is good, and your companies are doing wonderfully, even if their stocks haven’t. All the news on our companies has been great.

For all I know our stocks may start another dip tomorrow, but the companies they represent are VERY strong.

Best wishes,

Saul

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My portfolio hit down 17% ytd on that Monday (I was at 83% of what I started the year with). Today it’s at 103.7% of where it started, so it has risen 25% since March 8th (103.7/83.0 = 1.25). If you are in the same kind of stocks as I am, I’m sure your results have been in the same order of magnitude. Aren’t you glad you didn’t get scared out?

It sure feels worse when comparing the 8Mar bottom to the 12Feb peak than the start of 2021. I’m sure you were down more than 30% from 12Feb to 8Mar. My portfolio was +18.3% YTD on 12Feb and then -22.8% YTD on 8Mar. That’s 77.2 / 118.3 = 34.7% drop. But we know that these drops happen periodically and that eventually our portfolios will hit a new ATH.

GR

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Hi Gaucho, my high was Feb 9, up 15.9%, so I was up 2.4% less than you, but dropped 6.3% less than you on the downside (28.4%), and we’re probably at roughly the same place now.

I totally agree with your premise that these drops happen periodically and that eventually our portfolios will hit new all time highs.

Stock picking for the long term does work! I don’t know how the guys who trade for a couple of dollars in a few days on the upside, and then next a couple of dollars on the downside, don’t go crazy with the stress. I know someone who works in the Active Traders section for a large brokerage and he says most of those guys end up going broke (literally). As an aside, during the last major pullback he was transferred to helping out in the margin department, because every day there were so many guys getting margin calls that he had to help the margin department sell these guys out of their positions involuntarily, because they couldn’t (or wouldn’t), meet their margin calls. Poor guys, they get sold out and then a few days later their stocks start up again. Really kind of sad.

Best,

Saul

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Thanks to Saul, of course, for his steady hand…but huge props to Gaucho for his March 6 blog post detailing past drops and recovery times. Fortunes are made when everyone is running for the exits and we have the conviction to stay the course.

https://gauchorico.com/big-drops/

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Like you Gaucho, I am torturing myself using the Feb. 12th ATH for my portfolio. I know there is little to be gained by anchoring on the past, but I find it provides me some perspective as well as an informal “goal” to nurture my account back to those ATH’s of 2-12-21. But to Saul’s point, one of the primary lessons I have learned through this board is the solid investor temperament you can develop when you are invested in quality and have done the work to have conviction. FWIW; I am current +5.1% YTD but remain -11.56% off the Feb. 12th high. I’m good though; I know I have quality and conviction.

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Jerry sent me this relevant quote in an email off board, but I thought it was worth sharing:

“The US stock market has never not recovered from a depression, recession or correction.”

It’s something we all know, but can easily lose sight of in the heat of the moment. It tells you that if you are dependent on your investments for living on, make sure you keep enough in cash so you won’t have to sell at the bottom for living money, and as for the rest, relax.

Saul

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Draw downs can be unnerving, especially when it is such a rapid downdraft. It’s par to the course, we are not investing in bonds or treasuries, there is risk involved. Growth stocks can have great returns, but they can also experience great draw downs, and very quickly. Provided you stick to quality companies, you can ride it out. The exception is when there is a major macro event that can take everything down and keep it down for years… we haven’t had an event like that in decades.

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“The US stock market has never not recovered from a depression, recession or correction.”

look up: Survivorship Bias.

Generally I am not concerned for the long term health of the US stock market, but basing your confidence on that fact that it has recovered from each stressful situation so far, would be like a climber saying that he is ok taking risks, because none of them have crippled or killed him yet.

Even then the survival of the US stock market has been greatly reliant on the strength and stability of the US Federal Government. Given the recent (40 years) attacks on the US Federal Government, I don’t see that safety net always being able to catch the stock market.

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It’s something we all know, but can easily lose sight of in the heat of the moment. It tells you that if you are dependent on your investments for living on, make sure you keep enough in cash so you won’t have to sell at the bottom for living money, and as for the rest, relax.

Good advise for sure; just be sure you know how long you might need to wait. The recent bounce backs have been very quick (a few weeks, in a few instances a few months), but there will likely come a time when it might take a few years to bounce back - and some won’t ever.

The “good companies always bounce back” statement is true; however with a few qualifications.

  1. What is a “good company” - a circular definition might be “one that bounces back” ; it is not always clear at the time. I am old enough to have lived through many scenarios where I thought I was investing in a “good company”; only to find out that their business model wasn’t as permanent as I had thought.

  2. How long will it take to bounce back - again having been investing for 25+ years I can say; longer than you might think. There are lots of case studies to look at such as AMZN, MSFT, CSCO, even GOOG had a period of 5 years of basically zero return.

This of course creates a conundrum; what is the drag on a portfolio of having 5 years of cash put aside - not invested. (More of a portfolio question and probably best answered on another board).

tecmo

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