Rule Breaker Investing is back with Great Quotes Vol. 2, and host David Gardner is sharing four of his favorite quotes.
Find out what Walt Whitman can teach us about investing, how The IT Crowd is pushing geek culture into the mainstream, what Warren Buffett's three I's of every business cycle (innovators, imitators, and idiots) can teach investors about the hype cycle, and how one of David Gardner's own quotes can show us how to make money in the stock market even when it goes down one out of every three years.
In this segment, Motley Fool co-founder David Gardner shares one of his own verbal nuggets about investing in stocks. Listen in to hear his perspective on how the market has acted over the last century, and how investors can use this to make money when everyone else is pulling out.
Check out David's other favorite quotes:
- "Do I Contradict Myself? Very Well, Then I Contradict Myself..."
- Warren Buffett's 3 I's of Every Business Cycle
- "I Came Here to Drink Milk and Kick Ass, and I've Just Finished My Milk"
A transcript follows the video.
This podcast was recorded on March 23, 2016.
David Gardner: This is a little bit self-serving, and I apologize, because this is one of my quotes. Occasionally, as you may remember from a past mailbag, I ask myself a question on my mailbag, and I might even think that I have a great thought or two that I'll occasionally move into the Great Quotes podcasts.
And so yes, I think from time to time about the things that I've written and said, and what's worked and what's not, and what might actually outlive me, and I keep a list of things that I think are more likely to do so than not -- if anything does at all. And if -- if it ever happens -- this might be one of them. Here's the line:
Stocks always go down faster than they go up, but they always go up more than they go down.
Why do I include it this week? Well, I hope you can see how very naturally it flows from our first quote this week. Keeping opposed thoughts in one's mind, contradicting yourself. These two ideas are very contradictory in a lot of people's minds, but it's really important to keep both in mind.
Let me slow down and just go a little bit deeper into this one. The first part of it is "stocks always go down faster than they go up." Yes, we've seen the market slide awfully quickly there, from December into February. And how many times do individual stocks drop 30%-40% on earnings? How often do those stocks with strong earnings go up 30% or 40%? In my experience, much less often.
And so, I think that it's just a truism. People tend to panic out of things. They sell the whole market, or a stock. And yet bullishness, or the willingness, or belief -- not just of you as an individual, but lots of people -- to buoy a stock or propel it up ... single events don't typically, in my experience, trigger those kinds of big ups. And so stocks always go down faster than they go up.
But then there's the second part of it -- I think I've shared this sentiment with you before in this podcast: "they always go up more than they go down." Step away from the 20th Century right into the 21st Century, and just look at a graph of the Dow Jones Industrial Average or the S&P 500. You're going to see something that mainly looks like going up a mountain -- the classic evolution everybody wants to see in their graphs -- from lower left to upper right.
That is the stock market, and it's not just over the last year or five years or some random period in this nation's or any other nation's history. If you just look at the growth of global markets -- the growth of the value of being a stock market investor over centuries -- as somebody like Jeremy Siegel does in his work, you're going to see it goes up over time. They always go up more than they go down.
Yes, stocks go down. The average bear market, studies have said, lasts about 18 months. It's not really a very fun 18 months. Sometimes it's less than that. Sometimes it's more. But here's the good news: The average so-called bull market lasts for years. And simple math again: Two years in three, the stock market rises; one year in three, the stock market declines. The numbers are totally on our side as investors -- by definition, people acting over the long term.
And so you have to be able to look past the first part of that quote, "stocks always go down faster than they go up." A lot of people, in the face of that do, in fact, sadly sell. They're the people who, at the bottom of the market in 2009, said, "I'm finally done," and some of them still aren't back by 2016. Unfortunately it's understandable from a human-mentality standpoint. That's why Fitzgerald calls it genius if you can keep opposed thoughts in your head at the same time -- but it's so important for you and me as we look to maximize our returns.
The best way most of us are going to make the most money in our lives is to invest in the stock market, leave it in the stock market, and add more to the stock market as we save and age going forward. That remains just as true today as it did 50 or 100 years ago. Stocks always go down faster than they go up, but they always go up more than they go down.