The Markets Have Been Discouraging, But Don't be Discouraged
After a long bear market, stocks soared in 2003, leading many to expect more good things in 2004. Those good things haven't materialized. If you're finding it hard to stay positive these days, let me share what encourages and comforts me...
Updated Feb 17, 2009
It's been a frustrating year so far for stock investors. After a long bear market, stocks soared in 2003, leading many to expect more good things in 2004. Those good things haven't materialized. Through mid-year, the stock market was still down more than 17% from its 2000 highs, even after last year's outstanding gains. Stated in dollar terms, that means a $10,000 account was still hovering around $8,300. As we pointed out in our last Model Portfolios report card, our Fund Upgrading strategy has done significantly better than the overall market. But even so, watching the market head lower yet again over the past several weeks has been discouraging for many investors, including Sound Mind Investing readers.
I'm right in the trenches with you. I invest the majority of my own retirement money in the same strategies and funds I recommend to you, so I've seen my accounts drop in value as well. Yet, I remain steadfastly optimistic. If you're finding it hard to stay positive these days, let me share what encourages and comforts me in the midst of all this uncertainty.
• I know that following God's principles will protect me. A basic premise of Sound Mind Investing's philosophy is that it's ultimately impossible to self-destruct financially if our decision-making is pointed in the direction of God's glory. That means Susie and I have set financial priorities that are honoring toward God, including an acceleration in our giving. We don't have as much to fear from economic storms if we've laid a strong financial foundation — being debt-free, have an emergency reserve, and are living on a budget that produces a monthly surplus.
• I know that the U.S. economy remains the strongest in the world and stock prices will eventually rise with it. Every bear market is followed by a bull market. It's surprising how easy it is to lose sight of this self-evident truth. We can get caught up in the market's emotional cycle where positives are overlooked. There is a growing feeling that the old rules no longer apply and we can't count on the market ever being strong again. But this is a trap. History has repeatedly shown that profit opportunities are greatest when the outlook seems bleakest.
• I know that the strategies I'm using have been tested and proven effective. SMI's successes in the past have not been based on any ability to anticipate future events. Rather, they have been the result of following mechanical, trend-following guidelines that keep me diversified among those investment managers who are doing the best job at the present time. As long as there are markets, there will be trends. It's true that sometimes a trend is short lived, and just as we align ourselves with it, the trend weakens or even reverses, leaving us with a loss. This is to be expected. The trick is to not let this short-term setback discourage you from faithfully adjusting matters in order to follow the new trend. This flexibility has worked wonderfully well in the past, and I have every confidence it will work wonderfully well in the future.
• I know that my patience will be rewarded. This allows me to take up-and-down market cycles in stride. We must take our lead from the Parable of the Talents where the master was away for "a long time" and make our strategy a long-term one that aspires to get-rich-slow. Legendary investor Sir John Templeton emphasizes that time is the enemy of the speculator, but the friend of the investor: "It is the passage of time that gives most approaches to the stock market the chance to work. I'm not talking about weeks or months, but years. Most of us, by nature, are results-oriented. Without performance, we lose interest. As such, lack of patience is probably the single greatest impediment to success in the stock market. Remember, success in the market takes time."
So, what do I do while I'm waiting? I practice "inside-out" thinking where my decisions are guided by my personal goals rather than external events. Also, I continue to focus what I can control rather than what I can't. The amount of wealth we can accumulate through investing is determined by a great many factors, not only by how the stock market behaves. And most importantly, every day I take advantage of His grand and loving invitation to "approach the throne of grace with confidence, so that we may receive mercy and find grace to help us in our time of need." (Hebrews 4:16)
© Sound Mind Investing
I'm right in the trenches with you. I invest the majority of my own retirement money in the same strategies and funds I recommend to you, so I've seen my accounts drop in value as well. Yet, I remain steadfastly optimistic. If you're finding it hard to stay positive these days, let me share what encourages and comforts me in the midst of all this uncertainty.
• I know that following God's principles will protect me. A basic premise of Sound Mind Investing's philosophy is that it's ultimately impossible to self-destruct financially if our decision-making is pointed in the direction of God's glory. That means Susie and I have set financial priorities that are honoring toward God, including an acceleration in our giving. We don't have as much to fear from economic storms if we've laid a strong financial foundation — being debt-free, have an emergency reserve, and are living on a budget that produces a monthly surplus.
• I know that the U.S. economy remains the strongest in the world and stock prices will eventually rise with it. Every bear market is followed by a bull market. It's surprising how easy it is to lose sight of this self-evident truth. We can get caught up in the market's emotional cycle where positives are overlooked. There is a growing feeling that the old rules no longer apply and we can't count on the market ever being strong again. But this is a trap. History has repeatedly shown that profit opportunities are greatest when the outlook seems bleakest.
• I know that the strategies I'm using have been tested and proven effective. SMI's successes in the past have not been based on any ability to anticipate future events. Rather, they have been the result of following mechanical, trend-following guidelines that keep me diversified among those investment managers who are doing the best job at the present time. As long as there are markets, there will be trends. It's true that sometimes a trend is short lived, and just as we align ourselves with it, the trend weakens or even reverses, leaving us with a loss. This is to be expected. The trick is to not let this short-term setback discourage you from faithfully adjusting matters in order to follow the new trend. This flexibility has worked wonderfully well in the past, and I have every confidence it will work wonderfully well in the future.
• I know that my patience will be rewarded. This allows me to take up-and-down market cycles in stride. We must take our lead from the Parable of the Talents where the master was away for "a long time" and make our strategy a long-term one that aspires to get-rich-slow. Legendary investor Sir John Templeton emphasizes that time is the enemy of the speculator, but the friend of the investor: "It is the passage of time that gives most approaches to the stock market the chance to work. I'm not talking about weeks or months, but years. Most of us, by nature, are results-oriented. Without performance, we lose interest. As such, lack of patience is probably the single greatest impediment to success in the stock market. Remember, success in the market takes time."
So, what do I do while I'm waiting? I practice "inside-out" thinking where my decisions are guided by my personal goals rather than external events. Also, I continue to focus what I can control rather than what I can't. The amount of wealth we can accumulate through investing is determined by a great many factors, not only by how the stock market behaves. And most importantly, every day I take advantage of His grand and loving invitation to "approach the throne of grace with confidence, so that we may receive mercy and find grace to help us in our time of need." (Hebrews 4:16)
© Sound Mind Investing
Published since 1990, Sound Mind Investing is America's best-selling financial newsletter written from a biblical perspective. Visit the Sound Mind Investing website.
Originally published August 16, 2004.
