The S&P 500 just closed at a new low for 2022, down nearly 25% off the highs. Meanwhile, the Nasdaq and Russell 2000 Indexes are down 33% each. And that’s just here in America. Thanks to the rocketing U.S. dollar, foreign equities are plunging as well. European equities are down 33% (EFA) and Emerging Markets are down 40% (EEM).
Oil just fell to a new low and is 41% off the highs. Mortgage rates are on their way to 7% and housing is coming to a screeching halt. Its demise won’t bode well for the economy. The VIX has returned to its high of 2022, bears are everywhere and it seems like the dumbest thing you can do is buy stocks.
I’m buying anyway. Here’s why.
① One: You don’t get very many chances to acquire shares this far off the highs. Indeed it happens no more than once to twice a decade.
② Two: We’re closer to the bottom than the top. The average bear market takes the S&P 500 down around 30%. We’re very nearly there already.
③ Three: As a long-term investor, I’m far more concerned with missing out on the next double than I am suffering through another 10% down. Whatever additional loss arrives over the coming weeks and months will be temporary. The subsequent advance will be permanent.
④ Four: You have two choices when buying in a bear market. Buy on the way down or wait for an uptrend/bottoming pattern and buy on the way up. They both have merit. In putting money to work now, I’m opting for the former.
⑤ Five: Time will bail me out. The market’s forward returns look fantastic (see here) when you’ve purchased this far off the highs.
⑥ Six: I’m investing money I don’t need for over a decade. Should I really care if stocks drop another 10%-20% from here before continuing their long-term advance?
⑦ Seven: It never feels good buying during a bear market. That’s part of the reason why it’s the right move. One of the biggest regrets I have is not putting more money to work during the major bear markets of my career. It’s a mistake I won’t be making again.
⑧ Eight: You don’t have to know how this will end. You just have to know that it will end. The worst-case scenario never arrives. Sooner or later the stock market sniffs out the recession, prices it in, we bottom, and the permanent advance of equities returns. Seeds planted now will bear fruit in the years to come.
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