Interesting thread. As of this post there’s 23 ahead of me (I think).
So here’s the way I see it. My wife is Chinese and has only lived in the US for the last two years. She has not a clue about investing, yet every day she asks, “How are the investments doing?” She doesn’t know what the investments are or why I’ve chosen one company versus another.
Nevertheless, our investments were up 64% for the year at the close of September. I patiently explain to my wife that this is abnormal. My expectation, my goal is 20% a year. This year has been extraordinary.
But I also assure her that a “correction” most assuredly will come, it always does. So, I could have played it “safe” and I could be up something much less for the year, say 15% - 16% by investing in an S&P index fund. A loss of 20% would be less painful with respect to the amount lost. If I had started the year with $1,000 invested, my investments would be worth $1,150. A 20% loss would amount to $230, leaving us with $920, an $80 loss for the year. But, the fact is that I’m up 64% which would make that initial $1,000 worth $1,640 today. A 20% loss amounts to $328, quite a lot more in terms of cash, That los would put my portfolio at $1,312, which is still a 31% gain for the year. And I wrote above that my goal is 20%.
“OK,” you might say, “but the stuff you’re invested in is likely to suffer more than a 20% loss.” “Well, maybe.” I would reply. First of all, I am very judicious about what companies I chose to invest in. I don’t just screen for fast growth and put my money there. I look for real companies with real business plans and real products and/or services doing business within a corporate structure I understand with financial statements that I also understand. I don’t (any longer) invest in “a promising future” or “a great story.” So while the companies I invest in may suffer more than the average, and maybe my gain for the year might fall to 15% if they get trampled, I’m still ahead. In my book, that’s preferable to a loss.
Would I sell everything to cash if I saw trouble? Probably not. First of all, “trouble” is not always easy to spot. I sold almost everything last November after the election. Please, please, please don’t turn that comment into a political flame. It was my personal evaluation that the election results would not be good for investors. I freely admit I was 100% wrong. Obviously, I got back into the market shortly thereafter. My point is not a to be taken as a partisan/political issue. My point is that flash points and market motion are not obvious, except in hindsight.
So I would stay nearly 100% invested, but I might shift some positions around. Good companies use market corrections to become better companies by buying competitors on the cheap, or expanding share or whatever. That’s what makes them good companies to begin with.
I’m a pretty old guy. Far too old to be fully in the stock market as I am (according to conventional wisdom). Yet, I don’t perceive any better investments, even at my advanced age. And my wife is 9 years younger than I, and I have a daughter and a granddaughter. Even if I don’t reap the full rewards of my investments, I believe my family will.
I have a debt of gratitude to Saul for this board that I will never be able to repay.