It’s not as bad as you’d think

Fear reigns supreme in investment decisions. Often, that fear drives people to sell–exactly when they shouldn’t. But perhaps even more common is that fear prevents people from buying. 

And the reasoning behind not buying? It’s almost always the same: “I don’t want to buy at exactly the wrong time, just ahead of a crash.”

Ok, but what would have happened if you did buy at the worst possible time?

Let’s take two examples:

First, the financial crisis from 10+ years ago. If you bought the S&P 500 at the worst possible time—the absolute top of the market in October 2007, you would have compounded at +8.6% per year through yesterday (that’s a 191% gain overall). Pretty good for terrible timing. 

That includes enduring the full extent of the 2008 crash and further losses in early 2009. And it would have meant standing idly by through every single correction since. So buying at the worst possible time in 2007 was very profitable if you subsequently did nothing. 

Let’s take a more recent example: February 2020. Let’s say you put all of your life savings into the S&P 500 at the worst possible time in 2020. That would have been terrible, right? Not really.

You’d be up 2.7% this year. Not so bad considering all that’s happened. 

The kicker is if you owned a collection of very profitable companies instead of owning the S&P, you would have done even better in both scenarios. 

Maybe the market goes down after the election. Maybe it doesn’t. But that doesn’t really matter. Why? Because owning the most profitable businesses in America is a winning strategy, given enough time.  

Best regards,

Evan McGoff