We spend a lot of energy anticipating bear markets and crashes and recessions and depressions but the reality is that the vast majority of the time the market is growing - what's your strategy then?
I've already discussed what not to do with your money so what is the alternative. If you look at the chart below there are three personalities represented. In my view there is a gambler, a stopped clock and a casino owner; more on that later.
What you're actually looking at are the cumulative returns for "bull" and "bear" markets in Canada from the 50's to present day. Clearly the data supports my thesis that markets support long term growth on average and invested funds, left alone, in good times and in bad will experience growth periods about 75% of the time and negative growth periods 25% of the time, resulting in positive long term growth. That's not news.
It may help a bit to personify the chart a bit to help makes sense of it all.
The gambler:
The history of our industry is founded upon the principle of "beating the game". Most brokers implicitly suggest they can help you predict the future or provide the knowledge and inside analysis that will be sure to give you the upper edge and advantage in the market. Much like a gambler would enter a casino with a "proven system" or lucky hand and try to beat the roulette wheel. In the investment world that might mean your broker has promised to "get you out" when markets are heading down, or provide guidance as to when you should “get back in". The truth: that can't be done with any amount of reliable consistency.
The stopped clock:
Ever hear of some analysts always predicting doom and gloom? It is a failsafe system to always be right. If someone was predicting a market meltdown leading to a worldwide global recession throughout the 90's and into 2000's they would have been able to finally say "I told you so" in 2008. "See I was right, the market crashed". it's the old saying, "even a stopped clock is right twice a day". But at what cost, the opportunity lost by staying out of the market would far outweigh any benefit added by missing the 9 months of the 2008 bear market. Predicting doom is a booming industry but adds no value when planning for your future retirement or in managing your wealth.
The Casino Owner:
There is one sure way to make money from the message in the chart below and that is taking on the persona of the casino owner. Unlike the gambler who tries to beat the game, the casino owner has decided to own it. And that person knows full well that there will be times when someone walks through the doors and wins big and the casino loses that day, but the numbers are in the casino owners favour, and if he just keeps the doors open, day in day out, enough people will be walking out a little lighter in the wallet to make the business of the casino profitable. That is my approach. The data is clear that if we stay invested (keep the "casino"doors open) the overwhelming majority of the time we will be in positive territory and certainly there will be times of loss but they will always be temporary. We can say short term market movements are absolutely unknowable but the long term trend is inevitable.
This is the only sure fire way to build your wealth and it is the only responsible way to plan for your future.
