One Bad Mistake

Bill Parrott |

Bill Buckner committed one of the worst errors in baseball history. During game six of the 1986 World Series, the Boston Red Sox led the New York Mets three games to two. In extra innings, a ground ball went through his legs, allowing the winning run to score. The Mets would go on to win the game and the World Series. People don't remember that Mr. Buckner had 2,715 career hits, was the National League batting champion in 1980, and played for twenty-one seasons. He was a good player, but people only remember his one bad mistake.

The stock market has risen 75% of the time, averaging 10% annually since 1926. Yet, investors primarily focus on corrections like the Great Financial Crisis (GFC)  from 2007 to 2009 or the Tech Wreck from 2000 to 2003. When I started my career, investors worried about another October 19, 1987, when the Dow Jones fell 22%. Few people want to talk about the strength of the market, like the period from 2009 to 2017, where the S&P 500 averaged 15.3% per year, or 1990 to 1999, which returned 20.9% annually - another winning streak occurred from 1982 to 1989, where it gained 18.9% yearly. People remember corrections and crashes but ignore the market's long-term trend.

Investors can create generational wealth if they own stocks, invest regularly, and avoid big mistakes. What's a big mistake? It occurs when investors panic during corrections and scary times like 1987, 2000, 2008, 2018, 2020, or 2022. The October 19, 1987 crash was the worst since the Great Depression, yet the Dow Jones finished the year in positive territory. After the Tech Wreck, the S&P 500 climbed 66% from 2003 to 2007. It soared 141% after the Great Financial Crisis (GFC). The stock market crashed 31% in thirty days during the initial days of COVID, but from March 2020 to December 2021, it jumped 113%. If you stayed in the game, your assets recovered quickly.

After the GFC, I talked with investors who said they sold their investments in 2007, before the correction. I congratulated them on their market timing skills and asked, "When did you get back in the market?" Several years later, most did not because they feared stocks would fall further or crash again. Though they allegedly timed the market correctly, they failed to return to the market to ride the rebound.

Since 1972, the S&P 500 has risen 78% of the time. The index finished in negative territory eleven times, falling on average 14.4%, while the average gain during the positive forty years has been 19%. Rebounds and recoveries last a long time, and the index has averaged 10.27% annually for the past fifty-one years.

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How can you avoid big mistakes? Here are a few recommendations.

  • Diversify. Diversify your assets across size, sector, and country. Own a basket of small, medium, and large companies across the globe in different industries.
  • Plan. A well-constructed financial plan can keep you informed and invested during the dark days, allowing you to benefit from the long-term trend of stocks after they recover.
  • Patience. Buy stocks if your time horizon is three to five years or more. If you need money in the short term, buy US T-Bills. Time in the market is your friend.

I played Senior Babe Ruth baseball in high school, and in one game, I was playing left field. It was the last inning, and we were winning when I missed a fly ball. The runner on second base started running, and I took my eye off the ball; it rolled to the fence, and we lost the game. We would have won the game if I caught it. I occasionally think about that game and ignore the ones where I played well. It's human nature.

Play ball.

"If one picture is worth a thousand words, you have seen about a million words, but more than that, you have seen an absolutely bizarre finish to Game 6 of the 1986 World Series. The Mets are not only alive, they are well; and they will play the Red Sox in  Game 7 tomorrow!" ~ Vin Scully

August 17, 2023

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren't suitable for every investor. Prices and yields are for today only and are subject to change without notice.