This is Average

The S&P 500 is experiencing its worst January through April going all the way back to 1970. It’s hard to believe then, that part of an unusual year is exactly average, at least so far.

Going back to 1950, the S&P 500 has had a positive annual return 56 out of 71 years, or 79% of the time. But as we know all too well, stocks don’t go up in a straight line. The no free lunch part of these gains are temporary declines that never feel that way in real time. The visceral feeling that we get in the pits of our stomach on days like Friday is the emotional price we pay for the upside. And that price is too high for many.

The average intrayear drawdown going back to 1950 is 13.6%. That’s exactly where we closed on Friday.

While it’s factually true that we are right at the average, there are all sorts of reasons why 2022 is anything but. We’re seeing stocks blow up left and right, and not just small ones. We’re seeing losses in bonds that we haven’t experienced in four decades. We’ve got inflation and the fed removing liquidity from the market. So yeah, on the whole, hardly average.

It’s a difficult environment for investors and it’s probably not going to get any easier. It’s not the smartest investors that will endure, but the most patient. Peter Lynch said “In the stock market, the most important organ is the stomach. It’s not the brain.”

When I start to feel nervous about the market I do two things, remind myself why I’m investing in the first place, and then I buy more stocks. On that first point, the money is for my family’s security, and not one, five or even ten years from now. I have zero doubt, absolutely zero, that earnings will continue to grow and stocks will eventually follow. We’ve got a hundred years of data to confirm it. So I’m not going to do anything to get in the way of my destination, regardless of how much pain I have to endure. I know that eventually* I’ll be rewarded.

*We’re not Japan