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The Stock Market: The Only Place People Leave When They See A Sale… What Happens When You Stay?

One of the great benefits of being a stock market investor is its history. With each passing day, there is more data to review, discuss, analyze or whatever an investor likes to do with this information. For us, stock market history is a continuous reminder of success when one has a long-term time horizon. More specifically, why certain actions (or inactions) of a long-term investor sets one up for success.


Over the past decade, outside of March 2020 and a few other blips, the stock market (as measured by the S&P 500 Index) has unrelentingly risen. This chart reminds me of the Price Is Right game where the yodeler continued to climb the hill the further the contestant’s price guess is off. With this rise, investors who have not succumbed to the “the stock market has been going up too long, it has to correct” crowd, should have reaped the reward of a more valuable portfolio. All they had to do was keep their money invested.



But what if you didn’t just start investing in 2010 and you started in say 2000 and had to endure the less exciting period known as the Lost Decade? It’s easy to assume you would be worse off, right? In honor of the start of college football season, not so fast my friend!


When I first started as an investment advisor, I had an annoying take that the real long-term investor would rather see their investments decline in value because you could then buy them at a discount. Most people did not want to hear that a potential advisor would rather see a portfolio decline, so I dropped that commentary (for the most part). But you can’t hide from the truth.



The above chart is the S&P 500 Index return for the past 20+ years. As you see, the Lost Decade (2000 – 2010), without including dividends, declined about 10%. As long-term investors, we stay invested, and for many of us we continue to put more money into our accounts (especially via the 401k). Well, for those first 10 years, we were buying at a significant discount to where the stock market is priced today.


In fact, if we invested $1,500 monthly in the S&P 500 Index, your average cost was $1,046 during the first 10 years (2000 – 2010). At the end of year 10 the value of your investment would be $214,276… a paltry annualized return of less than 2%. This is far below the 9% – 10% historical average annual return of the stock market. But, back to my annoying little take, do we really care about this poor performing period if we are not even close to needing this money? Nope! In fact, the key number at the end of year 10 is $214,276… the amount of money you have managed to invest over this Lost Decade.


Over the next 10 years, the S&P 500 Index will increase 250%+ to $4,395 (as of June 30, 2021). Because of your continuous investing during the prior decade, this portion of your portfolio has done even better… more than tripling! Not too bad for just investing in the overall stock market. The performance of individual securities under the same scenario are even more spectacular.


An investor in Microsoft would have an average share cost of $19.31 over the first 10 years. As of Jun 30, 2021, that stock traded at $284.91 per share. Yes, a tech stock that has hit its stride as of late… but it was left for dead during that first decade. A more boring company per se, Costco experienced the same fate. Your average cost would have been $34.40 as of Dec 31, 2010. Ten plus years later, the stock trades at $428.92!


Needless to say, by staying invested, investors have been rewarded for their patience. Even more so for their discipline to continue to commit more money to their investments. In other words, you didn’t run out of the proverbial store when the cashiers yelled “sale.” You stayed, bought the discount and now, are much better off for it.


Clearly, as it relates to investing, patience is truly a requirement for success… but discipline is not far behind on the importance list.






Note: Nothing contained herein this letter should be considered to be investment advice, research or an invitation to buy or sell any securities. Chart(s) source: Morningstar.












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