I have observed a few things over my lifetime that I know to be true. The sun rises in the east and sets in the west. The tide comes in and the tide goes out. The spring always follows the winter. The stock market rises and the stock market falls. As Kevin Bacon said in A Few Good Men, “these are the facts of the case, and they are undisputed.” So, it is amazing to me when the stock market goes down investors run for the hills and sell their equity holdings.
According to the Financial Times (2/28/16) investors pulled $60 billion out of mutual funds in January. That is billions with a “B”. Do you know what happened in February and the first few days of March? An investor who cashed out on January 20th of this year would have missed out on a 10% rebound in the S&P 500 index. Instead, the individuals who sold out during the dark days of the market probably locked in a nice little loss. In this same article, Lipper reports that the last time this much money flowed out of mutual funds was in September of 2008. I know you know what happened since the fall of 2008. If you happened to buy during the 2008 pit of hopelessness you would have enjoyed a nice little run in the market with an average annual return of 8.91%. A $10,000 investment into the Vanguard S&P 500 fund on September 15, 2008 is now worth $18,898!
To be a successful, long term investor it would help to recalibrate your thinking. One suggestion is to type into your phone or write on a 3 x 5 card, “the market is down, what can I buy?” A contrarian thinker can buy when others are selling which should allow the investor to purchase a stock at a more favorable price. When you see a sea of red in the stock market, the time to buy may be near.
It is challenging to be a buyer when the “experts” in the media are hollering that the end of the world is near but this is the most opportune time to spend some money on high quality companies.
Two roads diverged in a wood, and I – I took the one less traveled by, and that has made all the difference. Robert Frost
Source: Investors pull more than $60bn from mutual funds in January, Attracta Mooney and Chris Newlands, 2/28/16