When your portfolio is bleeding losses during a tough market period, you might be tempted to throw in the towel or scoop up some less-than-advisable buys in the hopes of achieving a windfall of short-term returns. In this segment of Backstage Pass recorded on Jan. 26, Fool contributors Rachel Warren, Connor Allen, and Jason Hall talk about the importance of maintaining a long-term investment mindset.
Rachel Warren: We had a comment from Vihaan on this point. He was saying I believe a quote by Peter Lynch about avoiding losses, "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves." Vihaan is saying, in his view, that that is questionable, that he has seen his portfolio dropped 40% in two months. I wonder if either of you have a comment on that?
Connor Allen: Mine has, too. Mine has dropped 40% in just a little over two months probably as well and that thing is, go ahead, Jason.
Jason Hall: Go ahead. No, go ahead, please.
Connor Allen: Okay. Mine's dropped 40% in two months, but the thing is, Vihaan, I'm not looking on a two-month horizon, I'm looking on a five-year horizon. So I started investing in 2018 and I was looking at my portfolio, and I was like, "Man, I should've just."
What a lot of people would have thought is I should just put my money in the S&P 500, but I actually went back and looked and I started with Motley Fool Stock Advisors my senior year of high school, which is when I started investing.
I actually looked at my portfolio performance over the course of its lifetime, and I'm still beating the S&P 500 since 2018, even though I'm experiencing a 40% loss in the past few months. So that's the way that you have to view it. You can't view it on these month-by-month bases.
Rachel Warren: Awesome.
Jason Hall: Here's what I wanted to share, and this is what's going to put the proof to what Mr. Lynch said and what other investors have talked about, David Gardner has talked about not being a bear market hero, is this right here. Vihaan, I feel you, portfolio down 40%. Connor, I feel for you. I'm down as much again because I've built that barbell, so I have a lot of dividend stocks that have helped. The real estate investment stocks that have helped soak up some of those losses.
But this is the coronavirus crash, February 19th through March 23rd, 2020. So 33.8% in total returns loss. If you just look at the level, it was a 35% drop.
Just imagine being the person that had sold everything somewhere around here anticipating that every other major market crash that we've had, it's going to take years for the market to fully recover only for this to happen.
So you lock in those 35% in losses, and I'm going to change this, only to see from the bottom, the market roared back to a double. That's with the sell-off that we've had. That's the number that Peter Lynch is talking about there.
Rachel Warren: It's that long-term horizon.
Jason Hall: Missing the gains to avoid the losses, 40% in two months, my friend, that sucks. It sucks, doesn't it, Connor? It's painful.
Rachel Warren: It sucks. I'm down 20% over the last few months, so not as bad, but still I feel your pain, Vihaan.
Jason Hall: Yeah. I mean, that's the thing. I have a good friend who's semi-retired, did very well, they've seen their portfolio fall over 30% at the beginning of the year, that for them is about $2 million. [laughs]
Rachel Warren: Wow. [laughs]
Jason Hall: [laughs] But they retired with enough money and a large enough margin of safety.
Rachel Warren: Yeah.
Jason Hall: That it's OK. Because this is somebody that's still investing for 20 years down the road and has a large enough margin of safety. All of that to say, 40% in two months does suck.
Focus on the two months, focus on when your goals are. I'm assuming your goals for that money wasn't three months from now. [laughs] It's not short-term money, it's hopefully three-years, five-years, 10-plus years. If you own wonderful companies, enough of them, it's going to work out fine.
Connor Allen: There was a great call into Dave Ramsey, this was a few years ago, and some lady calls in and says, well, I sold everything before the crash in 2008 because I was worried about it and I have been told by my financial advisors to worry about it.
He goes, "Well, that's great. Did you put your money back in?" She was like, "No, ever have, but I missed all of the drops in the stock market. It was great." That call was in 2015, and in 2015, if she had just stayed in the market throughout 2008, she would have done fantastic. It just goes to show that anticipating the crashes like what Peter Lynch says, I do believe that's true.
Rachel Warren: Well, here's the thing that I always remember. The stock market has crashed every so many years over the last 50 years. It just is a snapshot. On average, there's a correction every couple of years or so.
But the thing that always helps me when I look back every single time there has been a crash, or a correction, not only has the stock market rebounded, but it has recovered beyond the point where it was before that crash in most cases, if not all.
I think that that is something that, for me, personally, as a newer investor, when I look at this period that we're in is a great reminder of why I'm keeping my eyes on the prize and why my goals aren't for even a year from now or two years from now, but five, 10, 15 years or more.
I'm a long way off from retirement so my time horizon might look very different from someone else's. But that's where I think everyone's personal investment philosophy and the way you build your portfolio should be informed by your goals, where you're at in life, when you are planning on retiring, etc. But thank you both for sharing your thoughts on that, and I hope that answers your question, Vihaan.
