The darkest hour is just before dawn
The darkest hour is just before dawn.
I’ve read more reports and seen more graphs this week than I think at any point in my professional career. From all of that, I think the simple table below does a great job of summarizing investing in growth assets such as stocks. First, it shows you the daily downside exposure. This is important because we have grown to become a population that loves instant information, good and bad. And as much as someone tells you to be a long-term investor, the daily moves in the stock market are what we feel most emotionally. Below we can see that Thursday of this week was the 2nd worst day since 1960. Ouch. Secondly, the table shows you the light at the end of the tunnel. It shows you that after 1-year from these extreme selloffs, in 13 of the 15 instances, the markets were higher, on average +22.38% higher. And 3-years later, all 15 of the instances were higher. Simple and powerful.
This highlights the importance of keeping funds that you need within 1-year liquid, or readily available in cash. This will alleviate you from panic selling and liquidating positions at the most inopportune time. The upcoming months will be volatile, and this is not to say we have seen a bottom in stock prices. Rather, this is a friendly reminder that the darkest hour is just before dawn.
Cory Michael Nakamura CFA, CFP, PPC Chief Investment Strategist