The Bill Comes Due

Don’t do anything is the best advice for most people most of the time, but it’s not intellectually stimulating enough for many people to take seriously. Most fields have a positive correlation between effort and results. Investing is one of the few where the correlation is negative, especially for amateurs. The higher your IQ is, the harder it is to accept this.”
– Morgan Housel


Normally I don’t like to begin these newsletters with dry statistics but please indulge me with the excuse that these are not “normal times”.

With that out of the way I would like to point out that since 1871 market downturns have recovered as follows:

  • 33% of market downturns recover within a month;
  • 50% of market downturns recover within two months;
  • 80% of market downturns recover within one year; and
  • 95% of the time those big “once or twice in a lifetime drops” return to being even in three to four years.

Collectively, the average time it takes for the market to recover (from top to trough to top again) is 7.9 months. (Source: Above the Market March/31/20.)

Now, eight months doesn’t seem like a long time to wait out a market downturn but it can seem like a very long time when you are in the middle of it and there is no end in sight. I would also be remiss if I didn’t point out that eight months is the average time it takes for the markets to recover. By definition, 50% of the time it takes longer.

If you are reading this then there is a 99% chance you are a ”buy and hold” type investor. One of the challenges of adopting this investment philosophy is that it is easy when the markets are positive. However, during periods like right now … not so much. Another way of looking at it during periods like today is that this is exactly when the bill comes due for being a successful buy and hold investor! For more on this topic I encourage you to click through to Ben Carlson’s excellent article, The Hardest Part of a Buy & Hold Strategy.


Keith N. Thomson

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