Growing Pains, Investment Losses & The Magic Juice

The economic reopening has rightfully crushed stay-at-home stocks recently, and that is getting a lot of media attention. After a phenomenal run in 2020, Zoom, Peloton, Teledoc, DocuSign, Doordash, etc are all 30-50% off of their highs; it certainly looks like proof the pandemic is winding down as fast as their stock prices. Long-term growth investors have had an incredible run in recent years, but many have forgotten what it’s like to lose.

My oldest daughter is 9 years old, so we’re well into the years of growing pains. She hates the taste of medicine (so much so, that she used to squirm and spit it out), so I decided to get creative. A cup of fruit juice, mixed with the cherry Tylenol is now called “magic juice”. Three years later, she will still ask for a cup of magic juice when those pains come back. It’s also helpful to remember that growing pains, although uncomfortable, are a necessary part of getting bigger and stronger.

Historically, the stock market makes new highs roughly 5% of the time, which is pretty extraordinary in its own right. But that also means the other 95% you are looking at your portfolio’s previous high point and painfully wondering if/when you’ll ever get back there. Humans tend to be risk-averse, meaning we’re always going to be somewhat worried that something could happen and we lose our savings.

Even the greatest investments can feel like rollercoasters: For example, A $1,000 investment in Apple’s IPO in 1980 would be worth over 1.2 Million today. However, that growth never came in a straight line. You had to endure breathtaking losses along the way if you wanted to enjoy the long-term gains

What we’re all learning is that being a good long-term investor is probably more about pain tolerance than intelligence.

Capital Group, formerly American Funds, reminds us that pullbacks should be expected on a regular basis. Historically, investors experienced an average of ten 10%+ corrections and two 20%+ bear markets every 10 years. Investors should also expect 5% pullbacks every few months.

Sitting out the painful periods sounds attractive, but it’s not only nearly impossible to time them, it’s also incredibly risky. Over the last 10 years, being uninvested during few of the big rally days cost you a fortune:

If the growing pains from investing in stocks are overwhelming, the “magic juice” you need might be adding some less risky investments to help stabilize your portfolio. Otherwise, try to remember short term volatility is the price of long-term growth. If everyone could do it, the return potential wouldn’t be nearly as attractive.