Is it time to start preparing for the next market upswing?
Reminder:
A cardinal theme of this Newsletter, website (and the Book it is informing) is that every reader should become a stock market investor for all the reasons highlighted and emphasized throughout every Newsletter. This reminder goes especially to our Great grandparents, grandparents, and parents, to build wealth for the next generation through their great grands, grands and own children.
Key Takeaways
- The stock market moves up and down in cycles from peak to trough and back again to peak
- These cycles are usually impacted by what the market calls macro-economic factors (like inflation and interest rate) and tend to have their own rhythm
- No one knows, or can reliably predict, the nest trough or the next peak of the market
- One way to get the most out of the market is to prepare oneself for entering it
- One way to ‘make it big’ is to become a long-term investor and ‘dive in’ when others are moving out
- One tenet of successful investing is the amount of time (years) one’s investment ‘spends in’ the market vs investors trying ‘to time’ it i.e. waiting, or looking, for a particular time to start investing.
- Anyone who wants to can become a successful stock market investor. And that includes you and I!
Is it time to start cultivating the mindset?
It’s not the amount of money you have to invest. It’s the mindset!
If you start with $1,000 and the market grows it to $2000 you, too, would have doubled your investment in the same way as the billionaire who increased his one billion to two. The market has just worked at 100% for both of you!
As you would have gathered by now, not only am I a long-term investor myself, but, I also invest for my immediate family circle, a few others, and remain pro bono advisor for my wider family group and, the many people who I have invited to the stock market. For these reasons, we, too, have an interest in what will happen to the market over the next several years.
And, speaking of the market moving in ‘up and down’ cycles, (Take away#1) and recognizing that said market, while not now in any trough, is never-the-less-becoming a ‘question mark’ on the radar of many investors, (because it may be heading for one) maybe, now is the time to start looking at the prospect of how to prepare ourselves attitudinally, and financially, to ‘dive in’ when our wealth advisor ‘gives the word.’
But be warned. Remember; he or she will not ‘give the word’ because he, or she, knows for sure that the market is going to the bottom or the peak! Remember, the market is a dynamic entity. As we have emphasized before, no one will know of a market bottom before the fact. It is only after it has happened that even the most knowledgeable experts (and the rest of us!) will know that it happened.
But what is ‘the market’
Up to this point, the phrase ‘the market’ has appeared many times but, especially against the reality that our declared mission is to get you to become a successful stock market investor ‘wherever you are’ what, specifically is ‘the market’ being referenced here?
That market is the US Market! And why?!
Here is the reality. The American market, at time of writing (2023) is by far, the largest in the world and, for better or worse, (as happens wherever size matters,) that market sets the ‘tone’, not only for itself but, many times, for all markets including the one in which you and I live.
So this is what we know.
The Americans, and maybe investors in your country and market, are seeing their recent best performance through their rear view mirrors, meaning, those performance peaks may be behind them and, because of inflation (a factor we will address in a future Newsletter) nobody knows for sure where their respective market “is going’ at this time. But, even if this were so, it would not be anything particularly strange to investors. Remember, stock markets have been around for a very long time (some say from 1611 with the Dutch East India Company in Amsterdam, Holland)
NOTE-1: Even if the markets were going to go ‘south’ i.e. lose value, this would definitely be a very big worry for current investors afraid of losing their investment but, from our perspective as intending investors, it would more be a godsend, a blessing in disguise.
You would by now have seen the reason. When a market goes into a trough, it means that the price of shares of even the best dividend paying, or growth-oriented companies, could become cheaper and even approach the stage of what some call a “sale” meaning, significantly below normal market price range. That, in itself, would give us a good reason to prepare ourselves in the event ‘the occasion’ presents itself!
No investor wishes for them but, deep market troughs have always been the source of some of the biggest market returns. In fact, one of Wall Street’s late and venerable investors, Shelby Cullom Davis has said “You make most of your money in a bear market; you just don’t realize it at the time”
Bottomline: for all investors, and more so for new and intending ones like us, it is important to have a balanced perspective on the market so that we become proactive about it (think and plan ahead) vs being reactive (behave as though everything took us by surprise)
Let’s put things into perspective
You and I don’t have to be investment historians, but, it can be helpful to learn from them and know what has happened before, because, that knowledge can give us a reference point or perspective which can help us to better understand the issues and potentials that we have to grapple with. Here, again, we will use the US market as our reference (Dow Jones Industrial Average, S&P500 & Nasdaq) simply because it is the biggest and most well-known across the world. The hope is that, as you read, you are making a linkage with what has happened, or is happening, in your own market, in whichever country, and wherever in the world, you both are (you and your market)
So here is our reference
As we will all recall, in 2007/8, the world financial market experienced a major downturn, called the Great Recession. While it started in America, It shook all investors and central bank governors across the world to their knees and left us wondering what ‘tomorrow’ would bring. Eventually, with some new thinking, and new ‘financial-engineering’, we were able to come back to the ‘financial surface’ and ‘breathe again’ But were we able to just breathe, or did many become very wealthy ‘from the depth’ of that trough? The Dow that measures 30 of America’s largest companies lost 54% of its value by 2009 and the index tracking 500 other large companies (S&P500) lost 57% of its value in the same time frame (2007-2009). Interestingly, since this ‘terrible fall’, the market has come back very prominently. This just goes to emphasize the nature of the market i.e. up sometimes and down other times but, as we keep repeating, it is a ‘forever thing’ and, the evidence is demonstrating that, those who do best in it are those who stay for the long haul. This is a wealth-building secret that you, and I, must absorb.
And the new wealth that has since been created?
Writing in the Washington Post of Dec 21, 2018, following is what one writerthomas.heath@washpost.com. wrote;
“The numbers are cosmic.”
“From the depths of the Great Recession in March 2009 through September of this year, the value of shares of the 500 largest public U.S. companies grew by $18.9 trillion. In addition to the rise in stock prices, those 500 businesses delivered $3.1 trillion to their shareholders in the form of dividends.”
And,
“The greatest amount of wealth creation in history” is what Howard Silverblatt of S&P Dow Jones Indices called it”.
Even if today’s market should drift into a recession can you, and I, see a day down the road when somebody else might say something similar of the recovery that could happen?
If you can, then that is why we must start the preparation now so that we, too, and our children, grand and great grandchildren, will be among the beneficiaries of that new wealth.
Note-2 Extensive research in the US market has shown that, including dividends reinstated, no 20 year span in their stock market has lost any money for any investor. Great Grands, Grands, and parents, take note. A future Newsletter will invite you to make this knowledge your track to run on in building wealth for your great grands, grands, and your own children)
So how do we prepare ourselves
There is a commonsense similarity between stock market investing and many of the things we do for our livelihood. For example, every career or occupation has a training or apprenticeship component where ‘greenhorns’ get introduced to the principles and strategies they should grasp to perform optimally in their job.
Along these lines, we posit that, as prospective investors, we should bring the same mindset, i.e. prepare ourselves, though not necessarily by going to formal classes. It’s somewhat like driving your car. You need not be the expert mechanic to fix it but at least, you must have an idea of the parts that make it run and the interlinkage between each.
In stock market investing, it begins by setting up the mental environment (starts in your head/mind), deciding on a reason and follows through on how to find the investable funds. Reading, they say, maketh the man.
In stock market investing, and as Francis Bacon said way back (he lived 1561-1626) “knowledge itself is power. (But you need not be the expert yourself. Just know from where to access the expertise i.e. your investment advisor.
Some empowering wealth-building strategies
As non-investors, there are many ways through which to prepare ourselves to start building our own, and some family wealth. Here are some.
- Start with a good reason, a basic grasp of market fundamentals and a long-term perspective.
- Build a relationship with a knowledgeable wealth adviser
- Start attending free, and paying investment seminars
- Read the financial/investing pages of our news-paper
- Subscribe to selected investment magazines
- Read recommended investment books
- Get one of the investment Apps for financial news, education and easy market access
- Discuss with family how to find investable funds
- Get to know your risk profile with wealth adviser’s help
- Get acquainted with Evaluation metrics (coming up in my Book and future Newsletters)
- Get to know the importance of stock market records; standardized version or your own design
- Get to know the importance of “Contract Notes” and why you should keep them
To wrap up
While we may not know exactly where stock markets across the world, and in our own country, may be going at this time, the one thing we know for sure is that it tends to come back stronger every time it goes into a bear phase. We also know that it is in this ‘coming back’ that a lot of investors make their wealth.
For ourselves, our children, and their children we, too, want to be among the beneficiaries of the stock market. This is why we want to start preparing ourselves now to become successful investors.