It is a reality of investing that when the good returns arrive they seem to do so quickly and often without warning.
And yet the bad news seems to go on and on. Of course, bad or disturbing news is far better if you are a media representative and perhaps our perspective is occasionally distorted by what we read in the paper or hear on the TV news.
What if $1,000 had been invested in the New Zealand share market in 1979. In the following 16 years all manner of unfortunate happenings occurred for investors ...
1979 Cuban conflict
1982 Muldoon price freeze
1983 The cold war intensifies
1984 Labour elected and interest rates rise
1985 Withdrawal from ANZUS
1987 October 17 share market crash
1989 Trouble in China targeted at Communism
1990 NZ budget destroys investor confidence
1991 Is restructuring working or are we becoming a third world country
1994 Rising interest rates in the United States cause problems for share and fixed interest markets all over the world and losses are taken.
Despite the bad news (and the above are just the tip of the iceberg) an investment in the NZ share market over the 16 years would have yielded an annual return of about 18% - as long as the investor stuck with their strategy during the tough times. This outcome remains valid today and into the future.
Not bad.
Similarly, an investment in the United States share market in the 1980’s would have returned an average 17.9% per annum, including 1987.
The share market was open for 2,500 trading days in the 1980’s. If you had missed the top 10 returning trading days your average return would have reduced to 12.6% per annum.
If you had missed the top 40 returning trading days your average return would have reduced to about 3.5% per annum, Your money would have done just as well in the bank.
These two stories have a similar message.
There will always be tough times when it seems that the last place you should be is invested.
But that is where you must be to achieve your investment goals. Because returns when they do arrive often happen quickly and when times are looking bleak and many investors are still out of the market.
Being a successful investor can be a tough game. The faith will be tested from time to time - but that feeling of discomfort is the one that will be rewarded with better than fixed interest returns over longer periods.
