Don’t Invest on Feelings
“I don’t feel like investing in the market.” That’s okay. We don’t invest on feelings.
For all our talk about being sophisticated and logical investors, the vast majority of us invest based on how we feel. Our feelings dictate when and how we invest. Let me give you two examples.
Investing Based On Euphoric Feelings
We love to invest when the markets are raging. When the values of the best businesses in the world are surging due to growth in their underlying value and increasing demand for their ownership shares, we love to invest. Surely, what has happened recently will keep happening!
We saw this in 2019 after a ten-year bull market and again in 2021 with the Covid stimulus buoying the values beyond what was reasonable. Everyone likes to invest when the markets are doing well. It’s euphoria.
Investing Based on Depressed Feelings
We hate to invest when the markets are volatile, particularly when the volatility is in the down direction. It makes us nervous. “I don’t want to lose my money,” we think.
We saw this in 2020 with the Covid Crash and in 2022-23 with the inflation and interest dip. People get skittish. Some commit the gravest of sins: selling their investments while the values are temporarily down. They are killed by the Fourth Horseman: Panic. But while many others never sell, they don’t invest either.
The Power of Investing in Businesses
As a quick review, here are the results of investing $10,000 in 1993 through November 2023 in the US Stock Market, US Bond Market, or cash, with the corresponding annual percentages.
- Cash: $20,579 (2.36%)
- Bonds: $36,702 (4.30%)
- Stocks: $179,402 (9.79%)
Remember that during this period, the value of the S&P 500 halved… twice. Add to that multiple wars, the Global Financial Crisis, and a Global Pandemic. I best people didn’t feel like investing then. And with all that, you would have nearly five times more money investing in businesses than in debts.
Which is More Likely?
We know (if not feel) that the values of the best businesses in the world (aka the “stock market”) go up and down all the time, but more up than down. We know (if not feel) that over the long term, investing in owning these companies produces the best long-term results. We know (if not feel) that we must only make it through the down periods to experience the up periods.
If we know that we will have periods when the values are temporarily down (aka bear markets), when is the next bear market likely to occur?
- After the market has been going up for ten straight years?
- Immediately after the one we just had?
No one knows. But if I had to guess, it would be the first one. The times we feel good about the market because it has been doing so well are when we should be cautious. Consequently, the times we feel uneasy about the market likely represent the best opportunities to invest in it.
Or, as Warren Buffet so succinctly put it, “Be fearful when others are greedy and greedy when others are fearful.”
Don’t Invest on Feelings. Invest When It Is Right.
Is now a good time to invest? Let me answer that by asking a different question.
When is the best time to plant a tree? Thirty years ago.
When is the second best time to plant a tree? Today.
The same can be said of investing. The best time to invest is when you have the money.
After 2020 and 2022, it sure feels like we are due for another strong market. But we don’t invest based on feelings. We invest when the time is right: when we have the money. If you need help investing at the right times and not when you feel or don’t feel like it, let me know. It’s what we do.
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This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are those of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.
