Are we heading toward an apocalyptic recession? And if so, when will we see the bottom?
Just reading those questions might have set your teeth on edge. And aside from causing anxiety, focusing on them is likely distracting you from something bigger.
So let’s put them aside altogether for something I think we can all agree on…
The bear market of 2022 has a lot of – if not most – investors nervous. There’s a good chance you’re concerned, too.
Maybe if stocks would just go down and stay down, there wouldn’t be so much anxiety. But 2022 has been nothing but a roller coaster with unpredictable ups and downs.
It’s been a volatile year. The market bottomed in June and then roared 17% higher before crashing back down to new lows. What’s an investor to do?
No matter how difficult it might feel, now is the time to stay calm, rational, and disciplined. Asking what stocks will do tomorrow is the wrong question altogether.
The right question is based on one of legendary trader Warren Buffett’s most valuable lessons. I know I’ve talked about Warren Buffet quite a bit recently, but his calculated move during the Great Recession is applicable to this particular time and to my main point. It can make the difference between retiring in safety and splendor…
And not retiring at all.
Our goal at Intelligent Income Daily – and Wide Moat Research – is to help you live out your golden years the way you want. That’s why we focus on consistent, reliable income as the foundation of our wealth-building strategy.
My team of analysts and I use our expertise to delve into individual stocks, market trends, and even larger truths to get you to a place of financial freedom.
Today, it’s that latter category (larger truths) I want to explore by bringing up the man who’s considered one of the most successful investors of all time.
Buffett has shared a lot of valuable advice over the decades… But there’s one story that made thousands of people a fortune, turning their retirement dreams into reality.
And it could help you cut through the uncertainty surrounding the market today to do the same.
Market Timing Doesn’t Matter
As scary as today’s bear market is, it pales compared to the Great Recession of 2007-2009. That marked the second-worst market crash in U.S. history.
The financial system was in free fall, the economy was crashing, and many were terrified that another Great Depression was upon us.
Yet Buffett started buying stocks by the billions in October 2008… the same month the Dow closed below 10,000 for the first time since 2004.
Had the Oracle of Omaha spotted the market bottom and decided this was the time to get back in?
Well, not exactly.
Here’s what happened after Buffett declared his intent to buy…
The S&P 500 fell another 32%, bottoming on March 9, 2009, at a 59% decline from record highs.
At first glance, we can conclude that Warren Buffett’s market timing skills sucked in 2008. The same goes for a second glance.
But what you need to know is that he wasn’t trying to market time at all. And because that wasn’t his goal, he didn’t fail.
He actually succeeded enormously. It’s just that he succeeded over time instead of right away.
You see, the S&P 500 went on to gain 481% from its bottom through today. And the Nasdaq rose 1,030%.
Individual companies like Amazon (AMZN) and UnitedHealth Group (UNH) did even better, rising 5,450% and 2,790%, respectively…
So the lesson here is it’s the stocks you choose that really matter in the end, not any attempt to predict and play macro-level events. Even if you have terrible timing and they drop right after you buy them, the best stocks win out over the long term.
But here’s what we see happen more often…
Investors tend to obsess over one- to two-year returns. Yet those really are short-term results. And according to studies from leading financial institutions including Bank of America and Fidelity, 94% of short-term results amount to luck.
Once you get further out, success becomes much more about fundamentals. Intensely so.
Here’s another way to look at it: In the short-term, luck is 33x as powerful as fundamentals. But in the long-term, fundamentals are 33x as powerful as luck.
And to build retirement income, we can’t rely on short-term luck.
That’s why, “Has the market bottomed yet?” is the wrong question to ask. The right one is, “What do the best stocks normally do after a big decline?”
After Market Hell Comes Market Heaven
The market’s 21% decline over the first half of 2022 was its 11th worst six-month return since 1971. And I’m not saying it’s necessarily done falling.
While the broad market almost always recovers in the next year after such bad performance… we have seen one time where it didn’t: The tech crash of the late 2000s. So we can’t say for certain we’re out of the woods yet.
But we don’t have to be certain.
Because after falling 18+% in six months, do you know how often the stock market then went on to deliver positive returns over the next three years?
Every. Single. Time.
That’s why Buffett never asked, “Is this the bottom? Will stocks fall more?” that fateful October. He just knew stocks were trading at firesale prices and would eventually recover.
He focused on the longer-term picture. And then he went bargain shopping.
So now is the time to sharpen your knives. Don’t entrust your retirement to fear and luck. And don’t worry whether your picks right now will drop.
As long as you keep Buffett’s model in mind, you’ll focus on the right questions and let the fundamentals carry you through.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily
P.S. To paraphrase Napoleon, the definition of a stock market genius is an investor who can “do the average thing when everyone else around him or her is losing their mind.” You just have to know what to look for.
And when it comes to stocks, that means assessing fundamentals. Now, you don’t have to be a genius to do it, but it helps to have the right research team on your side. That’s why my team at Intelligent Income Daily have made it their goal to find the strongest stocks to start building your own retirement portfolio.
What do you consider your fundamentals? Let us know your thoughts right here.