Current Market Conditions
We saw a significant market sell-off during the past few months. The S&P 500 is down almost 4% from its recent highs, and the Nasdaq 100 is in an 8% drawdown. Overall, SWCM clients underperformed during this drawdown, though we continue to outperform for the year. This is a good time to add funds to your investment accounts.
As we wrote a few weeks ago, we don't believe we are in an AI bubble. Typically, bubbles grow with extreme valuations and true manias. We don't have high valuations, nor are we in a mania environment. The stock market is currently in a pullback, and as investors, we are seeing a drawdown in clients' portfolios. Here are a few psychological tips:
1) No matter how great an investor we are, you will experience temporary portfolio drawdowns. Legendary investor Peter Lynch, who achieved a 604% return over his 13-year career, saw his portfolio decline by 27% to 56% several times. You must accept that temporary market declines are part of the investing journey, and you have no control over when they occur; you will stay calm and relaxed. In fact, all long-term investors with SWCM have experienced many market corrections, each time moving to new highs.
2) Remember, the current market price of a stock does not always reflect the actual value of the underlying business. This is precisely where we are today with the current correction. For example, in a recent correction, we saw AMZN's stock price drop over 20%. However, the business itself has not changed. It's making the same, if not better, revenue and free cash flow. Its intrinsic value is the same as it was a week ago. This is where we are today. At SWCM, we focus on the value of the underlying business and not the mispriced, manipulated stock. At SWCM, we hold high-quality companies and see a higher intrinsic value.
3) Focus on where the value of your portfolio will be in 3-5 years from now (or more). At SWCM, our investments in high-quality businesses should allow your portfolio to double in value every 5 years. In fact, SWCM investors have seen even better results over the last 5 years. When you focus on the destination, temporary price dips won't bother you at all. In fact, you should be looking at it as an opportunity to add more to your portfolio. Think of SWCM as the pilot; we know where we are going and where our destination is. We will get you there safely.
4) Avoid saying, "I should have sold before the drop." There is no way to predict short-term market moves. As a result, we stay fully invested, allowing your money to compound over time. Our 5-10-year track record has done just that, with a compounded return of nearly 20%.
5. Use this temporary stock market correction as an opportunity to add more funds to your portfolio.
Overall, we remain bullish and are using this correction to add to our growing list of companies we believe are undervalued. Stay invested.
Stay focused on the long term, and we will do very well. If you own an old 401(k) or retirement account, consider rolling it over to an IRA and investing wisely.
I am always willing to discuss this approach to investing. If you have any questions or concerns about your investment portfolio, please feel free to call or reply to this email. I am always here to provide you with additional investment resources.
Disclaimer:
The information in this material is for general information only and is that of the author, not a recommendation or solicitation to buy or sell investment products. This material was developed and produced by James Sullivan, who is not affiliated with the named broker-dealer. Always consult a tax or legal advisor to review your situation comprehensively. Dollar-cost averaging will not guarantee a profit or protect you from loss, but may reduce your average cost per share in a fluctuating market. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment. It does not take into account the effects of inflation and the fees and expenses associated with investing. A diversified portfolio does not assure a profit or protect against loss in a declining market.