Over my career I have experienced 21 market shocks, including the collapse of the Soviet Union, the bursting of the technology bubble, the global financial crisis and now COVID-19. I mention these events only to highlight the fact that market disruptions are a fact of life. It’s just a matter of time before the train goes off the rails. My list suggests it happens every 18 months or so.
Market disturbances are a fact of life for investors
Sources: MSCI, RIMES. As of 6/30/22. Data is indexed to 100 on 1/1/87, based on the MSCI World Index from 1/1/87–12/31/87, the MSCI ACWI with gross returns from 1/1/88–12/31/00, and the MSCI ACWI with net returns thereafter. Shown on a logarithmic scale.
As long as I’ve been in this business, I’ve seen the market swing from excessive enthusiasm to extreme pessimism. An investor with a reasonable degree of objectivity can benefit from selling the former and buying the latter. It’s an approach that frequently causes pain and tends to pay off mostly during the early stages of market upturns, as pessimism gives way to optimism. Warren Buffett said it best: Be fearful when others are greedy and greedy when others are fearful. Put another way, bear markets are an investor’s friend, provided they remain calm, patient and focus on the long term.
I like to purchase shares when they are down and out, but I also like to hang on long enough to let the market catch up with what I think is the true value of the company in question. Despite my value bent, I remain a strong believer in the resilience of the tech sector. Entry point is important to me. Therefore, I will look to invest in some select tech companies when their shares are beaten down.
What’s more, I have long placed an emphasis on dividends as the primary way that a company transfers value to its investors. In my view, the potential for dividend payers to provide relative stability during market turbulence is more important than ever. And I continue to hold several high dividend payers, as well as dividend growers.