Market decline got you down? Well, cheer up….
Getting unhappy when the market declines simply means that the investor is in the wrong market. Advances and declines are the nature of stock markets, and if I cannot stomach market declines then I should not be investing in stocks.
Getting unhappy when markets decline is like getting unhappy when it rains. Or snows. Rain, snow, sunny days, dry days, windy days, calm days… are all part of weather. We have no control over the weather, so we prepare by having different kinds of outerwear. And we understand that getting to work on rainy days or snowy days will be different than when the weather is “nice.”
Similarly, to invest in stocks, and even stock funds or ETFs means that we need to accept that prices fluctuate. Prices not only go up, but also go down.
Solution
The appropriate response, in my view, is to accept the volatility that is part of investing. I am repeating oft heard advice, but the long view is the best view. Namely, the longer one holds stock, the more likely of a positive outcome.
Even the most successful and rich investors suffer losses periodically. It was reported that for 2023 Q2, Warren Buffett’s Berkshire Hathaway “lost” $44 billion.
And assuredly, he is not giving up on the stock market because of a losing quarter.
Paper
When I experience a decline, I just remind myself that it is all on paper. Paper losses and paper gains do not affect me beyond it just being a statistic, because if I did not sell, I did not experience a loss or gain. And since my goal has and is to receive dividends, selling is not on the agenda. The most important number for me is the average monthly amount of dividends received (the annual amount of dividends received divided by 12). This way I can easily measure my dividends against my monthly expenses.
How do you experience losses? Let me know here.
The illustration is the diagram of a constellation, from ‘Abd al-Rahmān al-Sūfī’s “Illustrated Book of Fixed Stars” (ca. 1430). Courtesy Bibliothèque nationale de France.
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