We have all heard the adage “Buy Low and Sell High,” but how does that play out in real life?  Can anyone time the top and bottom of the market?  We do not believe it is possible.  So how do we ensure that you are buying when prices are low and selling when prices are high?  Let’s look at a very current and relevant example:

Toilet Paper…Yes, I said toilet paper!  Earlier this year I bought a 30-roll pack of Kirkland Brand 2-ply Bath Tissue from Costco as our household was running low.  The $19.99 price tag seemed reasonable compared to other stores I had shopped.  The VERY NEXT WEEK, Costco put out their monthly advertisement and offered $4 off the same product I recently purchased.  Being the economical consumer that I am, I returned and picked up another 30-roll pack.

Was I happy that I had toilet paper for my family even though I paid full price?  Sure, I needed it.  I was even more excited when I got it on sale!  Fast forward one month and now I am REALLY glad I bought all that toilet paper!  I have seen people offering up to $5 a roll on-line!

So what does my story about Costco brand toilet paper have to do with the markets?

Why does your thinking change when it comes to stocks?  They are something you need to meet your long-term goals.  It was full price a month ago.  Today it is on sale for 25% off, so why are we not stocking up?  Could it go on sale some more?  Sure!  But if you see it on sale, buy more!  You can always sell to someone for “$5/roll” later!

The Two-Week Plunge

We have a bear!  But what is a bear you ask?  No not the big brown and black grizzly kind or the sweet Koala kind (which is actually a marsupial – not a bear).  A bear market is defined as a drop in stock prices of 20% or more from their highest point.

On February 19^th the US stock market peaked and then plummeted in one of the fastest declines in US bear market history.  This was in line with what the markets experienced when Hitler invaded France, Black Monday, and what we have more recently experienced in the 2008 Financial Crisis.

So, what do all these events have in common?  The US economy has recovered from all of them!  In fact, we are up more than 400% from the bottom of the last “Epic 2 Week Plunge!”  As the next two charts will show you, we are no stranger to having double-digit declines even in prolonged periods of up markets.  We have had six episodes of double-digit declines since the 2008 financial crisis.

My Uncle Bob

In October of 1987, the Dow Jones Index was trading around 2,500.  While I was new to the investment advisor field at the time, my uncle Bob decided to trust me with his $100,000 investment.  By the time Halloween was rolling around, the only thing spooky was his account as I had managed to turn his balance into just shy of $69,000!  That account bounced around until after Christmas (lumps of coal were popular gifts for me that year).

To my surprise, he stuck with our original investment plan and did something “crazy”, he bought more!  It took until July of 1989 (~2 yrs) for his investment to fully recover back to the $100,000 mark.  His account balance at the end of March this year was just north of $1,600,000 as he has never touched his account. 

In hindsight does it particularly matter that the Dow went from 2,500 to 1,800?  Sure, the 30% decline was very painful at the time, but I learned an important lesson from that experience.  Wealth is built over time.  Buy quality companies when they are on sale and you will be rewarded for your patience.