We haven’t lost anything. No really. We haven’t. Look at your investments. Look at the transaction history. Have you lost anything? Not if you’ve done it right.
We Haven’t Lost Anything
We are still in the midst of a down market. To date, the S&P 500 has dipped a toe into 25% down territory a few times, before retreating back up. Perhaps we are truly on the way up, and the worst is behind us. But even as I write, we are still at 17% down from the all-time high.
And yet, I say, with gusto, “We haven’t lost anything.”
True. The value of 500 of the best businesses in the world, as measured by what people are willing to pay for an ownership share in those companies, is down from its all-time high. But, if history is any guide, this is nothing but a temporary decline. Once it is over, the values of the best businesses in the world shall continue their permanent ascent.
Indeed, the only way to turn this temporary decline into a permanent loss is to sell while the value is down, and thus miss out when it inevitably resumes its eternal advance. You lose money when you cement your ~20% loss, fearing greater losses, and miss the next 100% increase.
That is why I asked you to check not just your balance, but your transaction history. Your transactions will tell if you have sold while the value was temporarily down. If you have no “Sell” transactions, then you have no losses.
The way we talk matters. The way we refer to economic and financial principles affects the way we view them and our behavior around them. Let’s look at some examples.
Poorly Worded Financial Phrases
“Investing is Risky.”
Risky? How? Risky like gambling? Or perhaps like Russian roulette? The word “risky” means entirely different things to different people. We talked about that in Episode 13, What About the Risk?
“I’m investing in Bitcoin.”
No. You’re speculating that if you buy a made-up and unproven financial product, someone eventually will come along and want to pay you more for it than you paid. You cannot “invest” in both a proven strategy with generations of results and an infantile system of computer code. When we use the word “invest” to connote contributing U.S. dollars into both cryptocurrency and equities, we confuse the word “invest.”
Any Reference to the “Stock Market.”
The “stock market” is some nebulous entity. We do not understand it, and thus it is easy to fear it. The language we use exacerbates this problem.
We do not invest in the “stock market.” We buy ownership shares in the best businesses in the world. When they make money, we make money. When their value temporarily declines, so does our Net Worth Statement. And when their values continue their permanent advance, so do we. It is much easier to understand a true investment in a good business, as well as investing in 2,500 of them.
Language matters. It is why we, as much as possible, try to avoid using the phrase “stock market” and instead opt for “equities” or “the best businesses in the world.”
We Haven’t Lost Anything
We long-term goal-focused investors will not get sidetracked by this momentary dip in values. This is all part of the plan, a plan which includes, as part of “Plan A,” this very scenario. We know what to do. We haven’t lost anything.
When you hear a friend or family member lament all the money they’ve “lost” in the market, shake your head, smile, and put them on to this episode. It may be a gateway for them to revive their hope and belief in their future.
Catch yourself! Just because we know better doesn’t mean we aren’t susceptible to our lizard brains lying to us. You may look at an account statement, and you may hear your internal voice saying, “I’ve lost 20%!” or “I’ve lost $180,000!”
Catch yourself when that happens. Then shake your head, smile, and say, “No, that’s not true. My values have temporarily declined. Right now, folks will pay me $80 grand less than they would have at the end of last year. That’s all. And that’s okay. Those values will be back.
“This, too, shall pass. We haven’t lost anything.”
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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 the opinions 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.