A wise man once said: “Owning stocks is risky in the short term, but it’s riskier not to own them over the long-term”

The Stock Market left 2021 much the way it entered: Riding high on government stimulus, higher corporate earnings, a reopening economy. Last year saw gains in several asset classes:

After that banner year, stocks seemed a bit rich, bonds didn’t pay much, and a strengthening dollar would be potentially bad for alternatives.

Investors had a tough choice on January 1:

With so much perceived excess and euphoria around meme and tech stocks, it felt like something had to give, and it finally did this month.

The high valuation end of the market (which benefitted stay-at-home superstars like Peloton, Netflix, and Zoom) has been getting crushed since last spring. Several of those names are down 50-60%, which is expected for stocks which grow 3-4 fold over a 2 year period.

However, the rest of the market is now appearing to soften up as well. The Nasdaq just entered correction territory this week (>10% drop from its prior peak) and the S&P 500 looks like it’ll be shortly behind (down +/- 8%). Already 100 members for the S&P 500 are in their own bear market, falling some >20% lower than their recent highs.

In hindsight, some stock prices might have been overblown, but weren’t people saying that in 2020 and all of 2021? Timing the market is well known to be almost impossible.

Stocks are risky in the short run, and volatility is to be expected. As they say- no risk it, no biscuit. Market drawdowns happen regularly and should be expected a few times a year:

While we expect these drawdowns, we believe it would be unlikely to see a full-on stock market crash while our economy is doing so well.

Capital Group found that market pullbacks are generally shorter and less severe during economic expansions (like we’re in now):

We think these long-term economic tailwinds still support buying stocks:

Record employment numbers
Record stimulus/money in the system
Better than ever consumer balance sheet strength
Favorable long-term population demographics
Rising interest rates with high inflation long term low yield (safe) bonds unattractive
Inflation has been running hot at 7%- meaning cash has no chance to preserve purchasing power over the long run

Long story short: If you know what you own and believe in the companies, it’s probably not smart to sell into this panic.

Ultimately, there are 2 mindsets we’ve found helpful to survive this (and any) correction:

If you’ve owned stocks for a few years or more, congratulations! You’ve participated in one of the greatest (and most hated) bull markets of all time.
People who stayed the course thus far are most likely still sitting on plenty of gains, and that “house money” mentality can be a powerful mindset when facing drawdowns like we’re seeing today. Here’s the S&P 500 from last January to now (just 8% off all time highs):

2. If you’ve had FOMO on these big growth names or indexes before, now might be an opportunity to grab some shares. Low stock prices make investments less risky and imply higher future returns.

Putting in limit orders for companies on your wishlist can make an investor feel more like a hunter than the prey.

Surviving The Stock Market Teckoning of 2022