JAN 19 2016 – The Importance of Long-Term Investing


The above graph shows the S&P 500 index since 1929. As you can see, the last few weeks hardly register. The following article comes to us from BCV Asset Management and helps put the last couple of weeks in historical context.

“J. Paul Getty, an American industrialist and at one time the world’s richest private citizen, once said that the key to getting rich is simple- “Buy when everyone else is selling and hold when everyone else is buying.”

When global equity markets are falling, it is time to get excited about buying and holding great businesses through publicly-traded shares.  Our greatest asset as investors and portfolio managers is the ability to look out over the long-term horizon and work towards creating positive results.  Over time, great businesses will grow their earnings, reinvest those growing earnings, and their stock prices will rise. Dividends will also rise alongside higher earnings.

Many investors, however, are selling or avoiding equities because a poor quarterly earnings result or, worse, because of reasons that have nothing to do with the company itself but for general market or economic fears.  This is the time to be positive about stocks and to take advantage of prices that have fallen.  Many good companies are cheaper now than they were last year.

In October 2008, the very successful investor Warren Buffett wrote his ‘Buy American. I Am.’ opinion-editorial article in the New York Times.  At the time of the article, the S&P 500 Index had declined 42 percent from its high in October 2007.  Buffett was ridiculed by many investors as the market continued lower for the another five months, finally declining by 57 percent at its lowest point in March 2009.  The turnaround was almost as rapid, with the S&P 500 Index rising by 65 percent from the March low at the end of 2009.  Within five years, the S&P 500 Index had more than tripled from that March low.

The article, which can be found at http://www.nytimes.com/2008/10/17/opinion/17buffett.html, was written for everyday investors. Three excerpts from the piece are as relevant today as they were seven years ago:

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most companies will be setting new profit records 5, 10 and 20 years from now.”

“Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

Our best advice to investors is to turn off Business News Network (BNN), Bloomberg TV and CNBC, especially when the so-called ‘Markets in Turmoil’ segments are being presented.  Most of the wealth created through the markets was not done with active trading, stop-loss orders and moving to cash until one hears those robins.  It was created by buying good assets and good companies, especially when they are on sale.  Every eighteen months or so, stocks fall by ten percent or more.  These events are called corrections and cannot be avoided.  They are also considered normal.  Regardless of what the percentage decline will be at the lowest point, falling stock prices lead to buying opportunities, which are now appearing with greater frequency.”

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