Blood in the Streets

For purposes beyond this post, we ask you to remember the number 10; 10 days, a decade, 10×10=100. This number is important to always keep in the back of your mind when making decisions in the market.


COVID-19, the invisible enemy, has quarantined the masses and sent the market through mood swings that would shock even Kanye. Starting sometime during the week of March 9th, 2020, the market went through a decline that put people on a full panic to pull their money out and pile suitcases of cash in their basement with the rest of their unfinished projects. However, many people lack the perspective that they are not the only ones bleeding out; we are all in the market together, especially in times of catastrophe. We think back to Baron Rothschild, who made a fortune buying stocks during the height of the panic that followed the Battle of Waterloo against Napoleon when he stated, “the time to buy is when there’s blood in the streets, even if the blood is your own”.  We are all bleeding, but history has proven that time and time again, the best moments to buy stocks for long-term outperformance is during a crisis.


So, let’s take a quick look at how that number 10 plays into all of what is happening. Bank of America did a study that went back to 1930 and found if an investor missed out on the S&P 500’s ten best days in each decade the total returns would be just 91% compared to the 14,962% return for investors who held steady through the downturns. Note, the returns would be exponentially higher if you had the ability and courage to buy during these unstable moments. In 2019, Michael Aloi posted on The Motley Fool and wrote, “Many of the best days in the market come right after the worst days. According to the J.P. Morgan study, six of the 10 best days occurred within two weeks of the 10 worst days. One example was in 2015: The best day was Aug. 26, just two days after the worst day in the stock market that year.” Just 10 days in a calendar year can make or break your investments; now compound that over a decade, 20 years, 30 years and those 10 days each year begin to be worth more than the other 355 combined. We are looking at the Coronavirus infected weeks of March and April as possibly containing some of these said 10 days.


In the end, market environments like the one cause by COVID-19, leave people reeling with the idea that it can only get worse.  That psychological state leads people to thinking that the recession is not only inevitable but also permanent and therefore extrapolate this into the future. Thus, they sell first and ask questions later, spurring on more selling at losses as they panic rush to cash out on the market’s elevator ride down.  The more red they see in their portfolio, the more they are afraid to put the cash back into the market.  However, this is the exact moment investors should be aggressively buying. You cannot predict the 10 best days, but you can absolutely be a part of them by staying invested as everyone else is running for the exits.



Disclaimer

Phullplate.com is not a registered investment, legal or tax advisor or a broker/dealer. All investment/financial opinions expressed by Phullplate.com are from the personal research and experience of the owners of the site and are intended as educational material. Although, best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.


References

https://www.fool.com/investing/2019/04/11/what-happens-when-you-miss-the-best-days-in-the-st.aspx

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