Portfolio Returns of Patience

Portfolio Returns of Patience

Warren Buffett famously encourages being fearful when others are greedy, and greedy when others are fearful.

Easier said than done.

Samantha McLemore of Miller Value Partners had a great recent post (link here) regarding fear and greed in the markets and what has ensued since the Great Panic of 2007-2009:

“It’s amazing that October will mark a decade since the pre-financial crisis market peak. The ensuing period traumatized market participants with massive losses and serial crises. The after-effects still cause investors to flock towards safety and low volatility. Most people would probably be shocked to learn that from the market peak to the end of this quarter, the average annual return of the S&P 500 was 6.9%, almost exactly in line with the long-term average return since 1950 of 7%.”

In other words, even if you picked the exact worst time to invest in modern times (the peak in 2007), as long as you were patient enough to hold for the long-term, you earned solid returns that are in line with long-term averages.

Just think about that for a second.  The 2007-2009 market free-fall was the second worst decline in the history of the stock market.  The only worse period was obviously the Great Depression.  If you had invested your entire portfolio into the S&P 500 on the day the market peaked and stayed invested, you would have still earned long-term market average returns over the ensuing decade.


Unfortunately, most people let the short-term noise influence their behavior far too much, leading to suboptimal decisions and sub-par performance.

Having a strategy and sticking with it is without a doubt the toughest part of investing.  It’s also the piece of planning where I believe an advisor can often add the greatest value.  As practitioners, advisors are supposed to be able to ignore the noise.  Advisors are supposed to be able to keep clients from making poor decisions at inopportune times.  This is obviously assuming that you have a good advisor that has a solid retirement income strategy that accounts for market ups and downs.

However, advisors have their own shortcomings.

But, if you are a do-it-yourself investor, if you structure your portfolio knowing that market downturns are going to occur (not if, but when), it will allow you to maintain your long-term perspective when the inevitable downturn occurs.  If you haven’t already established an income strategy that will allow you to ride out the storm, do it now.

This process often starts with an investment policy statement that dictates the actions you’ll take in advance of significant market movements.  Prepare yourself now, don’t wait.  It’s when the tide goes out, that you find out who is swimming naked.



Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities.  Please see my Terms & Conditions page for a full disclaimer.

Leave a Reply