The first quarter of the year 2022 has been a very tough one for stock investors. Inflation is high and it seems the trend will not end. Stock and bond prices therefore are much lower. The FED is putting a stop to its easy monetary policies. The pandemic is still having a negative effect on labour and the global supply chain. There is a war in Europe.
It seems to be a very unusual time but plain history demonstrates it is not that unusual. There is always plenty of bad news on a similar scale somewhere in the world. It is just that we promptly forget it once we move past it.
Running to cash looks like the smart thing to do during these turbulent times and when the outlook is poor. But the facts of the past show something different. It has not been wise in the past and it is unlikely to be smart in the future all over again.
Every single market sell-off of the last 200 years was a buying opportunity. But when the stock market gets hit hard, people always feel emotional, need to act and do something about it. But history proves us wrong.
The most important quality for investors is not intellect but temperament. You are better off being a calm and deliberate individual of common sense than a volatile genius. Bad things happen sporadically and suddenly. Good things occur regularly and generally over a longer period of time.
Historically, the odds of making money in the stock market are 50% in one-day periods, 68% in one-year periods, 88% in 10-year periods and 100% in 20-year periods. History clearly show us, nothing outperforms a diversified portfolio of good stocks over the long term.
Always remember this. Better to stay put and do nothing than running into cash. The chances of missing out the next move up are big. But history shows us, if you have the guts, an even better strategy is to add quality stocks during these turbulent down periods.
Sven Franssen