I don’t have the track record of some investors here (+170% ytd). My portfolio is unapologetically, mine, so next year I expect to do better than you all ;o) I’ll get to a year-end review later this month. Through the years, I shifted from a mix of investments to strictly stocks to concentrated stocks. In spite of years non-optimal strategies, I exceeded market returns by a wide margin for the 24 years preceding this year. This is because I continue to learn and I am tenacious.
After this wonderful year, it’s important to determine what will keep us invested through disasters. Saul reminds me a little of Peter Lynch, the leading mutual fund manager of the Magellan Fund from 1977 – 1990. During that time, Magellan returned an average of 29% a year, but its average investor LOST MONEY!!! Why? When Magellan’s price dropped, they sold. When Magellan’s price jumped, they bought in. During that time, most people embraced the fear mongering that has permeated the media FOREVER. An interesting story related to Lynch’s investors is linked below (though I don’t advocate working with an “investment professional”).
During the 90’s, flighty investment behavior continued, even though investment information was more widely available than ever before. The eminent market commentator of the time commented on the jitteriness of individual investors.
In the 1950’s, the stock market had bulls and bears. In the 1990’s, all we have are sheep.
Today, as GauchoRico, Saul, and others have pointed out, growth stocks don’t go straight up. When dark days come, it’s important to remember how we invest in growth stocks is as important as what we invest in. Here’s some points that have been brought up before, but I think are good reminders so that we continue to benefit from long-term compounding.
- You’re not a growth stock INVESTOR unless you are willing weather a 40% drop, and are still willing to stay the course.
David Gardner defines an investor as someone will to stick with investments for long term growth, as opposed to traders, who try to leverage daily swings in a stock.
- We need our own rules that our investments live or die by.
Take a look at the knowledge base or portfolio reviews to get a sense for this. Codify your rules for YOU.
- Investment money and living money: never the twain shall meet.
Segregation allows us not to panic and sell because we don’t have the money needed for life during a stock market disaster.
- Perform your own due diligence.
“If you are distressed by anything external, the pain is not due to the thing itself, but to your estimate of it; and this you have the power to revoke at any moment.”
— Marcus Aurelius
The protection from disaster is an understanding of your investments. Why do you like them? What would cause them to succeed? What would cause them to fail? Has anything changed with them during a market crash? How will you manage them?
- Just experienced the greatest returns of your life, and have never experienced a downturn.
- Don’t understand your investments.
- If you are currently stressed out about the market highs.
Take these ideas to heart. You’ll feel better when tough times come.