Followup: Don’t Sit on the Sidelines!

In my post Public Equities: 2022 Outlook, I wrote:

Time is Money. Don’t Wait.

I got a lot of flak for that. How could I recommend investing when I don’t know what the future brings?! Wouldn’t that really depend on the risk target of an investor? True. That’s why I wrote about what I am doing. Not what you should be doing. I also had an insightful chat again with Ateet Ahluwalia at Bracket Capital, and we agreed on some investing fundamentals:

The most important thing about investing is to be invested. […] Investing is the discipline of relative selection.

Sidney Cottle, from Securities Analysis, 5th Edition (1988)

Howard Marks, in his memos at Oaktree, often talks about the three compounding challenges when you’re on the sidelines:

  1. Can you truly time the market when to get back in?
  2. Do you know what asset to pick when you’re getting back in?
  3. What do you do with the cash you’re sitting on in the meanwhile?

There was an interesting 2019 Retirement Guide by J.P. Morgan Bank with a statistic on the S&P 500. The slide fortunately survived the updates and made it into the 2022 Retirement Guide:

slide 44, J.P. Morgan Asset Management, “2022 Guide to Retirement”, March 22, 2022

Two key messages (at least for this blog post):

  1. Seven of the best 10 days occurred within two weeks of the 10 worst days. What if you gotten out of the market out of fear during these 10 worst days and didn’t get back in?
  2. Compounding is a bitch. While the difference between 9.52% and 2.63% (“missed 20 best days”) doesn’t seem large for the occasional retail investors, the absolute USD amount is $44,881… or 4.49x of your initial $10,000 you invested.

I highly suggest to closely read a lot of Howard Mark’s memos

Thoughts? Opinions? Comments? Corrections?