Patience in Investing: 2019 Update

John Noonan Uncategorized

Recency Bias. It affects us all, particularly in investing. It’s the observation that we tend to give recent information greater weight than the long-term evidence warrants. And it’s certainly rearing its ugly head these days.

We hit a peak last January and have been just meandering since. And the world is ending, or so you’d think. The four most dangerous words in investing are bubbling to the surface. This time it’s different. That’s what a sixteen-month span of not seeing any growth will do.

Look below. Does it look any different? Nope. The market goes up, meanders, goes up, meanders…wash, rinse, repeat. And it has done so amidst so many other “different” events: Brexit, Y2K, any war, the Dot-Com Bubble, Black Monday, a disappointing ending to Game of Thrones. Those were all supposed to be different. Yet, this recent period of meandering comes on the heels of an all-time high – proof that it was never different, and the markets went higher.

So be patient. And be rewarded.

Cheers,

John, Bill, Mark and Melanie

Two things are clear. First, long periods of no growth are common, and varied in length. Shorten the qualification to four months of no growth, and we see fifteen periods of no growth, covering 146 of the 269 total months. That means that for the last twenty-two years, one’s investment experience was significantly flat or down 54% of the time. Second, and more importantly, since we know through academic evidence that no one can predict when these flat or down periods will begin or end, the key to realizing the reward is patience and discipline.

It’s certainly not easy to wait, to be patient. When we discuss investing, we talk in terms of five years, ten years, twenty years – never five days, or ten weeks, or even twenty months. But months of no growth can seem like an eternity. We tend to live our lives day to day. Many of us look at our investments the same way. But investment goals should be formulated and measured in years, if not decades. Dealing in days, weeks, months, or even a few years is not investing – it’s gambling. And as this chart clearly shows, being patient throughout those years is absolutely necessary for investing success.