Yesterday I read a great investing-related article by Larry Swedroe. In it, Swedroe recaps lessons he says the market taught investors in 2023. None of these lessons, he points out, are new. Instead, “Many of them are repeats from prior years. Unfortunately, too many investors fail to learn them.”
In the article, one part in particular stood out for me:
Lesson 4: It Takes Discipline to Stay the Course Through Periods of Poor Performance, as All Risk Assets Go Through Them
All strategies that entail investing in risk assets are virtually guaranteed to experience long periods of underperformance. If you doubt that, consider that the S&P 500 has experienced three periods of at least 13 years when it underperformed riskless one-month Treasury bills (1929-43, 1966-82, and 2000-12). To gain the benefits of diversifying away from traditional 60/40 portfolios, you must have the discipline to stay the course (and even rebalance) during periods of negative performance.“12 Lessons the Market Taught Investors in 2023,” by Larry Swedroe, Morningstar.
I did a double take when I read this. The S&P beaten out over three different 13-year periods by 1-month treasury bills?? That’s a sobering thought, especially if you are basing your investing strategy on the idea that U.S. stocks (or stocks in general) will outperform other assets (I admit, I am).
Yet his reasoning is unassailable. By its very definition, being a long-term investor means mentally preparing oneself to withstand exactly the kind of thing Swedroe describes. So far, I feel that I have been able to hang tough through the challenges, such as the 2022 Bear Market, where stocks and bonds floundered pretty much all year long. Swedroe’s example reminds me of that time, at least in miniature. I recall telling my wife how our cash and I-Bonds were the best performers of 2022, since they were actually making money!
It’s not pretty to think of equities underperforming riskless assets for over a decade, but I appreciate the reminder that such things are possible in the normal course of one’s investing career. It emphasizes the role stick-to-it-ive-ness has in investing. The market does change. What is out of favor will mean revert, just like what is currently in favor.
It pays to stay focused on the long-term.
*Of course, from my point of view, the market downturn made it an ever better time to buy stocks, since they were on discount.