There is a lot of uncertainty right now, with everything in flux. The natural reaction for most is to sell first which is why we are getting the reaction we see in the market today. It is tempting to join the crowd out of fear, but we encourage you to read on to see what we think is the best way to react to the current situation.
At Providend, we understand that it can be a very nervous time for investors as you read the news headlines and watch your portfolios decrease in value. Our message however doesn’t change. We strongly encourage you to focus on your long-term financial goals and not the short-term market movement.
It’s definitely not a good time to sell, and instead do consider doing some dollar-cost averaging into your portfolio if you have funds available. When the global health crisis caused by the pandemic is over, economic activity will resume, and companies will start to generate cash flow again. History shows that after a crisis is over, the market recovers, and quite spectacularly at times. The key is to give it time and remain invested.
Watch this video as Christopher Tan, CEO of Providend, shares his experiences and reflections from the past financial crises which he’s been through in a bid to encourage everyone to continue to stay invested for the long-term.
Hello, everybody. About 12 years ago, sometime in July of 2008. And many of us remember that year to be the year of the Global Financial Crisis where the S&P 500 fell about 37% that year. I wanted to write an article to encourage investors back then because many of them were panicking and not knowing what to do. But I did not know what to write. And out of desperation, I remembered this story.
This story is about a man called Chance who worked for his master in a mansion. And he had very little contact with the outside world because most of the time, he spent it either watching television or taking care of the garden. One day after his master passed away, Chance wondered out of the mansion. And unfortunately, he was knocked down by a huge limousine that was owned by huge or rather a rich industrialist. So the industrialist brought Chance home to take care of him. And when Chance woke up, he found himself in a meeting with the industrialist, as well as the US President. And because the U.S. economy was doing so badly then, the President turned to Chance and asked him for advice.
And I thought what Chance replied has a lot of important lessons for us to learn from. And I’m going to read it directly from the novel:
So Chance shrank. He felt the roots of his thoughts had been suddenly yanked out of their wet earth and thrust, tangled, into the unfriendly air. He stared at the carpet. Finally, he spoke: “In a garden,” he said, “growth has its season. There are Spring and Summer, but there are also Fall and Winter. And then Spring and Summer again. As long as the roots are not severed, all is well and all will be well.”
And then Chance slowly raised his eyes and looked at the President. And the President seems quietly pleased.
And this is what the President said,
“I must admit that this is one of the most refreshing and optimistic statements I’ve heard in a very, very long time. Many of us forget that nature and society are one. Like nature, our economic system remains, in the long run, stable and rational, and that’s why we must not fear to be at its mercy. We welcome the inevitable seasons of nature, yet we are upset by the seasons of our economy. How foolish of us.
This is actually a brief summary from the early chapters of Jerzy Kosinski’s novel called Being There. And it was retold by the late John Bogle. I thought we can learn a lot from this story because growth indeed has its season. There are Spring and Summer, but there are also Fall and then Winter and Spring and Summer again. And as long as the roots are not severed, all is well and all will be well.
So when I wrote the article 12 years ago, I encouraged the investors not to panic in the short term but to invest and stay invested for the long term. Because I believe that the stock market will recover and it will go up once again.
And if we take a look at the chart, this was exactly what happened.
This was the point when I first wrote this article at the beginning of July 2008. And look at what happened 12 years later. Not only the market recovered, but it has also grown tremendously.
But today, it seems like everything is happening all over again. At the time of producing this video, the stock market represented by the Dow has fallen about 20% from its peak, going into bear territory. And the S&P 500 has fallen about 19% from its peak.
This situation is caused mainly by the COVID-19 virus, as well as the Oil Price War between Russia and Saudi Arabia.
But as long-term investors, I think the key question that we have to ask ourselves is whether we see the economic roots being severed. Do we see the downturn caused by this virus to go on forever? Do we see this oil war going on forever?
And I think the answer is a clear no. Just like any epidemic or pandemic, this too shall pass. And this oil war will also be over. And one day, economic activities will resume again. And one day, the stock market will rise again.
So allow me to show you another interesting chart.
This is how the market responded to crises in history. So if you hold a 60% stocks and 40% bonds portfolio and you go through the various crashes or crises over the past 3 decades, this was how the market recovered after 1 year, 3 years and 5 years.
So whether it is the 1987 Stock Market Crash or the 1989 U.S. Savings and Loan Crisis or the 1998 Asian Financial Crisis, Russian Crisis or the Dot-Com Crash in the year 2000 or the September 11 2001 Terrorist Attack or the 2008 GFC – Global Financial Crisis or the August 2011 U.S. Debt Downgrade. You will see that generally, whether it is after 1 year of the crisis or crash or after 3 years or after 5 years, the stock market not only recovered well, the portfolio rather, not only recovered well, but it recovered very strongly.
And yes, we are in winter months again. Yes, the stock markets have come down again. But I know that spring will come. So stay warm if you have to but don’t panic. And invest for the long term because in 3 years’ time, 5 years’ time, or maybe even 10 years’ time, you will be glad when you look back that you have done so.
Let me end this video by share with all of us Chance’s final words of wisdom. Chance said this, “I know the garden very well. I have worked in it all my life. Everything in it will grow strong in due course. And there is plenty of room in it for new trees and new flowers of all kinds. If you love your garden, you don’t mind working in it and waiting. And then in the proper season, you will surely see it flourish.”
I’ve been in this career for 22 years. And I’ve been through at least 5 to 6 market crashes or even crises, including this one. The one thing I know is that no matter how bad the crashes are, no matter how bad the crisis, they always recover. And in the long run, the market will always go up.
So don’t panic. Stay invested for the long term. Thank you very much for watching.
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