Sit Tight: You Wouldn’t Want to Miss Anything
It’s the third period and the game is scoreless. The refreshments you’ve had during the previous periods are starting to have an effect on you; the nachos with the nuclear orange “cheese” are beginning to look appealing. You think to yourself, what are odds that the Canucks can manage to string together enough consecutive passes to threaten a chance on net. Low, you decide. In an impulsive moment, the decision is made and you’re in the concourse before you know it, eagerly scanning for the nearest cheese fountain. Suddenly, the unmistakable sound of the home fans cheering washes over you. Your eyes find a screen just in time to catch the Canucks celebrating behind the opposing next. You’ve missed it – the only goal of the game and all because you decided to leave your seat. We’ve all been there.
As an investor, being in your “seat” is critical to ensure that you are there for when your team – in this case, a globally diversified portfolio – does score. It seems like a simple formula for success: don’t move = don’t miss the action. Easy, right? While it certainly seems straightforward, we recognize that it isn’t always an easy task; drinks get low, cravings for salty foods increase, and at times, nature calls. In the case of an investor, stock markets get volatile, portfolio values drop, and emotions begin to takeover. What if we just go to cash and wait for the “dip” to get back in? What if I leave my seat for just a minute?
Impact of Missing Top 10 Daily Returns for S&P/TSX Composite Total Return on Annualized Return
Jan 1, 2000 – April 30, 2020
As is illustrated above, the S&P/TSX Composite has delivered large returns suddenly and without notice. February 20th through March 23rd, the S&P/TSX was down over 37%. Who would have thought on the 24th the market would return nearly 12%? If you had decided that it was time to leave your seat, you would have missed out on the largest single day return in 20 years.
Is there ever a time when you can leave your seat during play? Given that we don’t believe anyone can consistently predict in which period the Canucks will score their goals, nor do we feel anyone has the ability to consistently sell at market highs and buy at market lows, there is a risk that you miss the big moment by getting up. Despite this unknowability, it doesn’t stop sports analyst and active money managers alike from making their predictions and guess what? Each market decline and each game, a small percentage of them will guess right, but even a broken clock is right twice a day.
So if you decide to tune out these self-titled experts, what can you do to ensure you don’t miss out on the positive returns and memorable goals? Use the intermissions and calmer periods in the stock markets to top up your drinks, get your snacks and remind yourself of what it means to be a disciplined, long-term investor following an evidence-based approach. You sit tight during the times of negative returns and constant turnovers, knowing that at some point, momentum will shift, and both your portfolio and one of the rising stars will get their chance to do what they do best: score.