Wendy Worstluck | Patience Trumps Timing

Wendy has had the worst luck of any investor I have ever met. In the last forty years, she has put her money into the stock market only on six occasions. Each time she has invested, you guessed it, has been at the worst possible time.

The first time Wendy decided to invest was in late September of 1987. The great 80’s boom was passing her, but the downturn that summer gave her some courage to invest and buy the dip. She promptly invested $400, which adjusted for inflation, would corollate to $1,000 today. A few weeks later, the stock market experienced it’s biggest one day collapse in history and Wendy had lost 25% of her portfolio. It took her three years to decide to invest some more money into the market and in the summer of 1990, she invested $450, which adjusted for inflation, would corollate to $1,000 today. A few days later, Saddam Hussein invaded Kuwait, oil went through the roof, the stock market tanked, and the world entered a crisis. Wendy again saw a big percentage of her portfolio disappear. After these two events, she swore that she was done with investing in the stock market. It just wasn’t for her. There was just way too much risk.

In the meantime, the 90’s roared right along. She watched as the markets kept going higher and higher. Commercials on TV would talk big about how high the NASDAQ was going, and eventually Wendy gave in to the hype and decided to invest again. Every time she put money into the market, it was at the wrong time. In July 1998, she invested $560, you guessed it, $1,000 in today’s dollars adjusted for inflation. A few days later, Russia defaulted on its debt, and the world once again was plunged in crisis. She followed that brilliant move with buying in March 2000, which turned out to be the peak of the Tech Bubble and the start of the longest bear market since the 1970s. As if that wasn’t bad enough, she decided to buy again in August of 2001 right before 9/11, and finally, her purchase in August 2008 right before the collapse of Lehman Brothers and the start of the financial crisis. WOW, what bad timing.

Wendy did two things throughout this process. She bought a diversified portfolio that invested in companies in the US and the rest of the world, and she did not panic and sell after the market tumbled each time. In other words, she diversified and did not panic and as it turns out, things worked out just fine for her. According to Barron’s, her $3,500 total investment would be worth $17,500 as of 6/22/2022. That’s more than 5 times her investment. It’s more than 3 times her investment when adjusted for inflation. *

Wendy’s case illustrates the unpredictability of markets. Not all market downturns are alike in their severity and duration and predicting the market’s peak or bottom is virtually impossible. At this point, we do not know how severe this current market decline will be, and how long it will last, or how long it will take to recover. But if history is any guide, prudent long-term INVESTORS, not traders, who can withstand the risks of the market should be well rewarded in the future. Therefore, the best remedy is to prepare now for future downturns by owning a well-diversified portfolio that fit’s one’s time horizon and risk tolerance.

Allen Minassian

* https://www.marketwatch.com/investing/barrons

Investment scenarios are hypothetical, for educational purposes only. Past performance is no guarantee of future results.