Will there be another stock market crash? Is it time to dump our stocks? The markets have been a pretty scary place lately – the Greek drama, Chinese stock market crash, global growth is slowing, oil and other commodities have collapsed, the Canadian economy is weakening etc etc. These days, there’s certainly no shortage of bad news or fear out there.
The mining sector has completely tanked and the energy sector is not far behind. In recent months we’ve seen energy sector dividend darlings like Crescent Point Energy and Cenovus slash their dividends. Even Canada’s almighty bank stocks are down nearly 20% from their peaks. Collectively these sectors make up the majority of the Canada’s stock market, the TSX. Yet, as a whole, the TSX is only down about 9%. How can that be? To my mind this suggests that the TSX has a lot further to fall. But am I scared? No way.
It’s times like these when we must take the long view and recognize that, as long term investors, it’s unreasonable to expect that every investment that we own will always just keep going up. That’s why we diversify because it’s never a good idea – no matter how compelling the case may be, to have ALL our money invested in just 1 thing.
We hold different stocks in companies across different sectors and countries. We own different types of assets like stocks, bonds, cash, gold, real estate and commodities. We rebalance where appropriate and always buy today’s loser because, more often than not, it will most likely become tomorrows winner. Remember that investment opportunities present themselves in every type of market and especially at times like these when fear and risk aversion creep into the markets.
So am I selling my stocks? Hell No! On the contrary, I continue to invest my money on a regular basis. In fact, as anyone can see from my most recent dividend income report, I’ve been making my regular, automatic investments. I continue to reinvest my dividend income and I’ve even added more money to take advantage of the market turmoil.
I think that global markets, not just Canada’s TSX, are headed lower, but I don’t care because I’m not changing the way that I invest. I’m seasoned enough to know that time in the market counts for more than timing the market – which I never really could get right. I’m not alone on that one either.
Very few people have ever had much success in timing the market. The market truly is kind of a herd mentality. As I saw in 2008 and 2009, lots of people tried to sell out as quickly as possible. Even once the market bottomed out, few people were buying because fear still guided them. They thought the markets were going to go even lower.
In fact, from March of 2009 until September 2012, there was constant fear of that dreaded “double-dip” recession – something that never did materialize. At the time, the so-called Bond King himself, Mr Bill Gross, had proclaimed the death of equities.
And do you remember what happened next? From September 2012 until now – the summer of 2015, US, Canadian and global equities were on fire! One of the biggest rallies in history. If you sold out in 2008/2009 and only returned after September 2012 you would have missed out on a 50% gain. If you only recently got back in, well then you missed the entire Bull run.
As I’ve said before, I’ve been investing on a regular basis since 2007 and all through 2008 and 2009 it made me sick that week after week I continued to invest and “lose” money on a regular basis. But you know something? That is the discipline of investing. Looking back at that time from today’s vantage point, investing that money during the depths of the recession were the best investments that I ever made.
So bring on the market crash, I say, because buying financial freedom has gotten rather expensive these last few years. I’m looking to buy my favourite companies at bargain basement prices.
I think that now’s a good time to remind people that when it comes to investing in the stock market, it’s important to stay the course and not let Mr. Market’s fear and stupidity become our own. Instead, as Ben Graham and Warren Buffett say, take advantage of it and profit from it!
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