You Don't Need Great Timing to Build Great Wealth By Sean Michael Cummings, analyst, True Wealth
Ronald Read led a humble life. He didn't bother with nice clothes. In fact, his appearance was so shabby that a pitying stranger once bought him a sandwich. But by the time he died, he was worth almost $8 million. His secret was long-term investing. After serving in WWII, Read came back to the U.S. to work blue-collar jobs as a gas-station attendant and a janitor at JCPenney. And along the way, he put money into the stock market. By buying great companies and holding them for the long term, Read amassed a seven-figure fortune. And he's a local legend in his hometown of Brattleboro, Vermont. The Brattleboro Memorial Hospital built a $23 million extension in his honor. Sometimes, growing your wealth is as simple as owning great businesses over time. But Ronald Read's story isn't our only evidence... As I'll explain today, we have more than half a century of market history to prove it.
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Let's say you receive an unexpected windfall and decide to put it all into stocks. Your goal is to grow your wealth over the long term. There's just one problem. You put your cash to work right before a historic market downturn... like the great financial crisis, the peak of the dot-com bubble, or the "Black Monday" crash. Of course, you couldn't have known what would happen. But the worst possible time to enter the market is just before a bear market. Your portfolio crashes... And it might not stop grinding lower until months or even years later. The longer you stay in, the more your principal investment dwindles. Every day, you think about cashing out and just walking away... But what if, like Ronald Read, you just stayed invested? I wanted to see what would happen to investors who bought at the peak... rode out a bear market of 30% or more... and stayed invested for the long haul. To test this, I found historic market peaks going back to 1970. Then I used monthly data to see what would happen if you bought at the peak... and simply stayed invested for the next 10 years. As it turns out, even bad timing becomes profitable over the long term. Take a look... If your timeline is long enough, it can help erase just about any downturn... After 10 years, the S&P 500 Index was positive after every major post-'70s bear market other than the dot-com crash in 2000. Even better, the average annualized return 10 years after a crash was just a percentage point lower than you'd get with a typical buy-and-hold strategy. The only period we can't account for yet is the COVID-19 crash. But stocks are already up 52% if you bought at that peak. This data proves what Ronald Read knew already... that time is the ultimate wealth-building tool. You don't need to buy at the bottom... and you don't need to sell at the top. All you need to do is invest in quality businesses... and have the discipline to let your investment grow. Good investing, Sean Michael Cummings Further Reading If you want multibagger returns, don't listen to the constant barrage of news. That's an easy way to lose money. Instead, use the idea behind the "coffee-can portfolio" to let your wealth grow untouched for years... Learn more here. It's human nature to overcomplicate an easy solution. But when it comes to investing, it's smarter to keep it simple – especially during down markets. Two tools can help you minimize your losses without worry or guesswork... Read more here. |
Market Notes HIGHS AND LOWS NEW HIGHS OF NOTE LAST WEEK General Dynamics (GD)... "offense" contractor
Barclays (BCS)... financial services
Amazon (AMZN)... online-retail king
Meta Platforms (META)... social media giant
Micron Technology (MU)... semiconductors
Dell Technologies (DELL)... laptops and PCs
Spotify Technology (SPOT)... audio streaming
Levi Strauss (LEVI)... jeans
General Electric (GE)... manufacturing
Caterpillar (CAT)... heavy machinery
Eaton (ETN)... power management
Dow (DOW)... chemical producer
Shell (SHEL)... oil and gas
ConocoPhillips (COP)... oil and gas
Marathon Petroleum (MPC)... oil and gas
Agnico Eagle Mines (AEM)... gold
Southern Copper (SCCO)... copper
Freeport-McMoRan (FCX)... diversified mining
Verizon Communications (VZ)... telecom NEW LOWS OF NOTE LAST WEEK Gilead Sciences (GILD)... biotechnology
Biogen (BIIB)... biotechnology
Walgreens Boots Alliance (WBA)... retail pharmacy
Starbucks (SBUX)... coffee "World Dominator"
Lamb Weston (LW)... frozen potatoes
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