… to those who wait

‘Patience is bitter, but its fruit is sweet’
Aristotle

Good things come to those who wait.  This was the strapline once used by Guinness to refer to the 119.5 seconds it takes to pour a ‘perfect’ pint of their iconic stout[1]. With investing, the time periods we are concerned about are measured in years, rather than seconds.  Looking at your investment portfolio too often only increases the chance that you will be disappointed.  This of course can be challenging at times, particularly during tumultuous markets.

We know that monitoring markets on a monthly basis looks rather stressful, as they yoyo through time whereby there are times during which the market is growing its purchasing power (i.e. beating inflation) and there are times when it is contracting.

The evident day-on-day and month-on-month yoyo is a consequence of new information being factored into prices on an ongoing basis.  Investors around the world digest this information, decide whether it will cause a change in a company’s cashflows (or the risks to them occurring), and hold or trade the company’s share accordingly.  These are the concerns of active investors casting judgements on an individual company’s prospects.

Over longer holding periods, the day-to-day worries of more actively managed portfolios are erased, as equity / share markets generate wealth over the longer term.  For instance, between January 1988 and June 2020, monthly rolling 20-year holding periods never resulted in a destruction of purchasing power.  A longer-term view to investing enables individuals to spend more time focusing on what matters most to them and to avoid the anxiety of watching one’s portfolio movements.

This is not to say that investing is a set-and-forget process, however.  Wells Gibson’s Investment Committee meets regularly on your behalf to kick the tyres of the portfolio, after reviewing any new evidence.  Over time there may be incremental changes to your investments (or there might not be) as a result, but the Investment Committee shares the outlook illustrated in the figure above – we have structured your portfolio for the long term, and it is built to weather all storms.

Delving deeper

If we look at longer term market data in the US back to 1927, the result is the same.  Furthermore, we can cherry-pick a 20-year period which is fresh in many investors’ minds: the bottom of the Financial Crisis. In this (extreme) 20-year period, to Feb-09, equity markets had barely recovered from the crash of technology shares in the early 00s, before falling over 50% in 2008/9, in real terms.  These were unsettling times to say the least.

Despite the headwinds, investors had been rewarded substantially for participating in the growth of capital markets over the longer term.  An equity investor viewing their portfolio for the first time in 20 years would have seen their wealth more than double, whilst at the same time the media was reporting headlines such as ‘Worst Crisis Since ‘30s, with No End Yet in Sight’[2].

Have faith in wealth-creation through capitalism and try not to look at your portfolio too often. As the adage goes: ‘look at your cash daily if you need to, your bonds once per year, and stocks every ten’.

Header image by Sarah Mitchell-Baker on Unsplash; York, UK, Looking over the River Ouse in York from Lendal Bridge.
[1] https://www.guinness-storehouse.com/en/guinness-academy
[2] Wall Street Journal, September 18, 2008