It’s been awhile since I’ve written about investing, and we’re about to wrap up 2022, so I figured it was a good time.
Tonight I don’t have a cohesive essay as much as a mash up of investing-related thoughts. Here goes:
The “Good Times” Trade Off
In my seven and a half years as an investor, I’ve noticed an interesting thing: there’s a trade off for the good times. The trade off is that when everything is going “well,” that means the funds you are buying are probably expensive. While it is fun to see the balance go sky high, the cost of buying new shares is also high! On the other hands, when things are “not going well,” that means the funds you are buying are probably cheaper, maybe even downright cheap. So while your total balances might be down, the cost of buying shares is also down. Score for accumulators!
This, of course, is also the foundation for so-called contrarian investing, the type Sir John Templeton was so fond of.
2022: A Year for Discounts, Relatively Speaking
This year, we have maintained our investing strategy of making regular contributions. This has been good because it has allowed us to buy on “discount.” I use that word in quotes, because today’s discount not too long ago would have been considered super expensive. For example, when the Pandemic hit, the high for VTSAX (Vanguard’s Total U.S. Stock Market Fund) was 84, reached in February 2020. The fund went as low as about 54 in March before rising rapidly through the rest of 2020 and 2021. By the beginning of 2022, it reached 118. That was its last high. It has struggled since, fluctuating in the 90s for much of the year.
A comparable story could be told for many of the funds we own, and this has created a nice buying opportunity this year as we make our regular monthly contributions.
Back to VTSAX: today’s discount is high compared to normal prices just a few years ago. In fact, if you compare the average price for my VTSAX purchases* in the last four years, you see some interesting things:
First of all, you’ll notice that the average price in 2022 was just about the same as the average price in 2021. That is the benefit of a down market–you get to buy at last year’s prices!
At the same time, notice how much more expensive the fund has been in the past two years compared with 2020 and 2019. Ah, such is life. The good news is that I did buy a lot of the fund in those two years, thus locking in what now seems like a screaming cheap price!
I Survived the 2022 Bear Market… Now Where’s My T-Shirt?
I suppose it’s not a big deal if you’ve been investing for a long, long time. But for me, it is a big deal to have weathered the volatile market of 2022. Sure, I wasn’t actually worried I wouldn’t. Nonetheless, it’s one thing to read about bear markets, it’s quite another to actually experience one. The 2020 market crash was so short-lived, tied up with the start of the Pandemic as it was, that I’m not sure it really counts. Or at least, it was not the unrelenting market roller coaster of ups and downs–with more downs–that 2022 has been. I have really felt the value of my investing training. They don’t tell you “stay the course” because of the easy times!
*Note: this is not an exact or scientific measurement, as the timing and amount of my VTSAX purchases has varied from year to year. For example, 2019 was the first year I bought VTSAX, and started with a fairly large sum, as I exchanged it for a target-date fund I owned. In contrast, this year I bought VTSAX on a monthly basis with my normal contributions. These irregularities certainly affect the reliability of the average price. Make of that what you will. At least it gives me a ballpark sense for prices at the time.