When Every Buy is a Good Buy

A recent BairdWealth.com article featured this quote by investor Howard Marks: “The investor’s goal should be to make a large number of good buys, not just a few perfect ones.” He wrote this to address the impossibility of perfectly calling the bottom in a falling market, but it also applies to investors with longer time horizons, like ourselves.

While it’s easy to get caught up in the daily fluctuations of the S&P 500, focusing too intently on the day-in, day-out distracts us from the goals of long-term investing. For instance, some may feel that they missed their window to invest after the market rebounded aggressively following the March 23rd low, and some may lament investing earlier in the year. But this attitude frames the issue in the wrong way, and can keep investors on the sidelines waiting for a timely moment or a second crash that may never come.

There is no perfect buy at the market bottom, and for the long-term investor it doesn’t matter anyway.

Over the last 50 years, there have been 26 declines of 10% or more in the S&P 500 from a recent high. I’ve cataloged them all below. That means 26 dates that marked a peak before a massive drop; 26 dates that only the unluckiest person could have invested on. But for the long-term investor? It didn’t matter one bit. The 20-year returns for even the most unlucky individual (one who invested only on the date of each peak) ranged from 60% to almost 1,100%, for an average return (not even including dividends!) of ~450%.

As we zoom out our time horizon, the concept of a “good buy” into the S&P 500 (or other broad market portfolio) widens until the entire idea becomes moot. With a long enough time horizon, every buy is a good buy.

In the end, we’ll never be as constantly unlucky as our hypothetical investor above, but we’ll also never be perfect market timers, either. Simply getting invested in the broad market or a portfolio of high-quality companies is the biggest step; dividend reinvestment, systematic rebalancing, and compounding do the rest.

And that is where we come in. The plans and portfolios we build for our clients are built for the long-term. If you have any questions about recent activity in the market, or would like to discuss getting started, please reach out.