Shell-shocked investors are leaving financial statements unopened, unwilling to face the pain of another slew of bad news. Yet, tremendous investment opportunities exist for investors with the perspective to look out a few years and who understand the market over time has an upward bias. To be a successful investor dictates long-term ownership in stocks for their superior return potential. This stance requires both patience and a confident view of the future. It appears that in the current climate investors are as irrationally pessimistic today as they were irrationally optimistic in recent years. Legendary investor and Warren Buffett’s mentor, the late Benjamin Graham, rightfully observed, “Individuals who cannot master their emotions are ill-suited to profit from the investment process.”
Two primary emotions drive investing: fear and greed. Clearly, fear has been in the driver’s seat during these past tumultuous months. At this juncture, we believe it’s time to lift one’s head and resolutely climb out of the bunker to begin to rebuild that battered portfolio and restore a sense of financial security. This requires adopting a psychologically healthy mindset by focusing on bounce-back resiliency and keeping hope alive.
A good dose of common sense is needed. If all the dozens of stocks in a diversified mutual fund became worthless, it would mean the capitalist system as we know it would have collapsed. In such an unlikely nightmare scenario, even money invested in insured bank CDs and money funds would not hold up or be safe. Further, anyone bailing out now is breaking a cardinal rule of investing by selling low and not the opposite.
It is counter-intuitive, but the fact is the general economy and stock market do not necessarily march in tandem. It is highly likely the stock market, as a leading indicator, could rebound early, perhaps suddenly and substantially, long before the economy recovers. Various researchers have found the average market return one year after the market low has been 32 percent. You do not want to miss any recovery rally of such magnitude.
Experienced investors know this challenge will pass. Better days lie head. Their hope has triumphed over fear and greed. They have the foresight and courage to see the silver lining among the storm clouds of the current downturn.
