Hello Grand Capital Clients,
With stock markets getting near the lows we saw in June, and the unprecedented beating we’ve seen with bonds, we are well aware that many of our clients have questions and concerns. Although we cannot answer the question regarding when things will get better, we do know that history and probability are on our side. Below is a great graphic that looks at the history of the S&P 500 returns from 1926 through 2021. We’ve also attached a copy of the graph along with commentary from Dimensional Fund Advisors [bulls-bears-and-long-term-benefits-of-stock-investing-us.pdf ]. The obvious take-away from this is that we don’t get out of the market when we’re in the ugly green areas because we don’t want to miss out on the nice blue areas!
History has shown us that downturns are a normal part of investing and can create opportunities that don’t exist when the markets only go up. This is obvious when we’re looking at history, but when we’re in the middle of it and it starts to feel like things may never get better, people can give up hope. Please don’t lose hope.
A way to look at risk is that if you were offered $120 for a “heads” coinflip and would lose $100 for a “tails” coinflip, most people wouldn’t be interested in this gamble even though the odds are 50/50 and the win is bigger than the loss. Now what if we could repeat this exercise every day? It would now look more appealing because we’d be given the opportunity to win back our losses and we should net out to a $10 win for every coin flip. This is similar to how risk in the stock market works. Looking at it in short periods – like one or two coin flips – can appear very risky. Taken over longer periods, on the road ahead the odds are in your favor.
We don’t want any of our clients to suffer in silence so please, please do not hesitate to reach out to us with any questions or to just talk.
Warm regards,
Ken
