“This is a Temporary Setback – I’m a Long-Term Investor!”

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When the market sell-off first started in February, there were several articles proudly pointing out how few 401k investors made any changes to their accounts. Nobody panicked! Yay! I remember thinking that such a declaration of victory was rather premature. If you have held onto your stocks so far according to your formal investment plan, then I applaud your conviction (or ability to not check your 401k balance). However, I also think it’s important to realize that the ride may be far from over.

This chart made the rounds in 2007 during the Great Financial Crisis, and has been copied so many times (you can tell by the blurriness) that I have no idea the original source. However, I still come back to it time and again.

Based on my own experiences, I can show you comments which gradually change from “This is just a temporary setback. I’m a long-term investor!” to “I can’t handle any more losses. I am selling and waiting this out!”.

My wild guess is that we are past the Anxiety stage and are somewhere in the Fear stage. There is still room for Desperation, Panic, and Capitulation. It’s like the awful seven dwarfs… I feel these emotions too, even if I don’t act on them. We are living through a historic moment. However, I see no permanent impairment in the power of productive businesses.

You won’t see a lot of market commentary on this site, as I don’t think adding to the noise is helpful. Thanks to the scientists and healthcare workers that will get us through this one, thanks to the other essential workers that have to stay out and about, and thanks to those that are helping by staying at home. Onwards (good movie BTW) to Hope and Relief!

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  1. Jonathan, i’m surprised that you think we’re at just the fear stage. I thought that was a few weeks back. Given we’ve had the biggest sell off since the great depression, I think we’re in the panic, capitulation stage. However, I don’t think we have bottomed I wonder if this curve plays out several times over the course of a bear market. So now let’s say we get a 20-30 % rally, people think the worst is past us and we realize that the damage to the economy is far more than we thought and the market sells off again and we cycle through that curve?

  2. Udo Licht says

    I think of it a little differently. I ask: What is the chance of the stock market going up from here in the next month? Then I ask: What are the chances of it dropping? The answer (to me) is that the market is far more likely to drop. So why should I be in the market at this point? Holding on through regular recessions makes sense since nobody has any idea whether the economy will get better or worse-thus market timing doesn’t work. In this case, it’s more like watching an asteroid coming, and knowing with certainty that it will hit.

  3. Mellifluy says

    Thanks for being a rational mind in this crazy world. I am lucky in that my spouse and I are currently employed and I don’t plan on counting on stock market returns to make it (in the near term). I have avoided looking at the market. Don’t need to stress about things I can’t control. It might take a long time to bounce back, but we will come out okay in the end.

  4. It’s been a painful ride down. I keep telling myself I don’t market time, but it’s been seriously tempting to cash out some of it to preserve what’s left. It’s made me doubt and stress and worry about my children’s college funds and my early retirement plans. When I was younger, the dot com bust scared me away from investing new money in the markets for a while, but I didn’t flinch during the financial crisis in 2008 and stayed the course. Fortunately, I do have cash reserves so I don’t have to worry about day to day for a while, but it’s the uncertainty of not just the current impact of the virus, but what it’s going to do to the world economy and how long it will take to recover. What made me feel a little better was I did some tax harvesting with my mutual funds. So, I haven’t left the market, but just recognized some of the losses. It’s a small thing, but it makes me feel like I’m doing something. Hang in there everyone and stay safe.

  5. I really have no idea what the market will do, but I don’t think we are out of the woods yet at all. The countries that have gone through this already have given us the blueprint: full lockdown + aggressive testing and tracing. We were late with the lockdowns, and we are still way behind in the testing and tracing. For this reason, I do not think we are past the bottom of this curve yet, at least on a human level.

    I remain very frustrated at the lack of decisive, quick action. I guess this is why I had such trouble working within a large bureaucracy.

  6. Thanks, Jonathan, for stepping back and reminding us why we invest – for the long term. Money in the stock market needs a 5+ year life.

    1. Who had it:
    Why can’t America test like China and South Korea to know who has had the virus and recovered? I’ve read this is waiting for approval. Seems like we should do this even if results are not 100%. How to influence this?

    2. Who has it:
    Testing who currently has it will eventually roll-out in mass. Don’t we need this before releasing the lock down.


  7. I’m still guessing we will see a 50%, possibly, at the worst, a 70% market collapse. But my slightly early retirement plan is absolutely fine with either. I don’t need any of my portfolio since I’m at a zero withdrawal rate. My worst case, if I ever do start withdrawal is 1.5%. I know this is a painful event for many, but it’s a non event for others, like me. I haven’t felt a trace of anxiety so far. And don’t expect to. Unless the virus kills me, that would be unpleasant of course.

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