It’s been a good run. Historic even. But there’s little doubt that the market is due for a correction. With COVID still not under control, microchips missing, supply chains disrupted and Republicans and Democrats unable to compromise on a permanent plan to raise the debt limit, it feels like we’re one holiday catastrophe away from the bottom falling out. Despite the fact that common sense tells us to stay invested in the market long term, it’s incredibly tempting to sell some stock holdings and have a lot of cash on hand to re-invest when the market hits bottom.
Last week, our family nest egg was down quite a bit. Psychologically, it’s hard to have a certain amount of money and wake up the next day and have a lot less money. I imagine it’s like having Brad Pitt’s face and then waking up the next day and having Seth Rogan’s face. It would take some getting used to. You might find yourself feeling depressed. You might wake up, look in the mirror and decide to go right back to bed because the thought of going through the rest of your life with that fat, stoned face isn’t worth the hassle of getting up, getting dressed, walking outside and forcing yourself to interact with other people.
That’s kind of what it’s like to wake up and be worth substantially less than you were in previous weeks. For example, let’s say you’d saved and invested wisely for the last 20 years and you were fortunate enough to be worth $500,000 dollars on paper. Then last month the value of your portfolio fell by 15% and you’re now only be worth $450,000. How do you walk around knowing you’re only worth $425,000 when you used to be be worth half a million? People would start to talk about you.
“Look at him. He used to be worth half a mil, now he’s only worth $425,000. So sad.”
“They invited us over for dinner last week. We didn’t know what to say. Who wants to eat at their house anymore?”
When the market starts to drop, I like to look at the S&P 500 chart Investopedia published earlier this year. This handy dandy image shows the S&P 500 returns by decade and how those returns would have been affected if you’d been able to exclude the 10 best and worst days of each decade.
What I love about this chart is there are so many ways to interpret it based on who you are and how you view the world. If you’re someone who thinks they can time the market, you look at this chart and say, “See, if you can just avoid the 10 worst days of the decade, your return since 1930 obliterates the market.”
If you’re someone who understand how impossible it is to exclude the 10 worst days of every decade, you look at this chart and say, “See, if you just keep your money invested, you’re up 17,715% since 1930. You’re rich beyond belief. You can order Chipotle’s new brisket burritos every night and live happily ever after.”
Then there are those who will say, “See, you don’t have to time it perfectly. If you were to exclude the 10 best and worst days, you’d still beat the market quite handily. So you should try to pull some of your money out right now because in the long run, you’ll benefit.”
Of course no one can know for sure which are the 10 best and 10 worst days of market performance by decade. And while it would be nice to go through life looking like Brad Pitt, I’m happy to stay the course, ride the waves and end up looking like stoned Seth Rogan.
