Navigating Market Volatility: Insights for Long-Term Investing Success

By Alan Ebright

As we embark on a new year filled with possibilities and challenges, it's crucial to maintain a disciplined approach to investing amidst market uncertainties. The past three years have been a testament to the resilience of long-term investment strategies, emphasizing the importance of detaching emotion from investment decisions and maintaining a steadfast focus on the horizon.

Granted, the past three years were filled with tremendous volatility, both up and down, but the short-term does not predict the long-term, nor should much attention be paid to the short-term. Just as staring at the waves through a ship's porthole can induce seasickness, focusing solely on short-term market fluctuations can lead to reactionary decisions that undermine long-term wealth creation. It would be better to stand up high on the bridge, where those waves look more like whitecaps, and look far out on the horizon.

A Real Example

Consider the journey of an investor who entrusted their portfolio to us at the turn of the millennium, promptly drifted off into a slumber, and woke up at the end of 2023. This Rip Van Winkle investor would have realized over a five-fold increase in the account value. However, if the investor had been awakened a few times during those years, there might have been several time periods which were so disturbing that the only thought would have been to sell everything and wait for better times. And if that did happen, that five-fold increase would have been greatly reduced, for when one sells out, reentering the market is usually a delayed response, therefore missing much of the recovery. Long-term returns tend to suffer greatly. However, our Rip didn’t know about any of the news items, only that the account value grew by 5X. If someone provided a recap of all that transpired, Rip would probably be amazed he made any money at all! This success story emphasizes the importance of maintaining a steadfast commitment to long-term investment objectives, irrespective of short-term market turbulence.

As we look ahead, it's crucial to recognize that the economy and the stock market are inherently unpredictable. Attempts to time market direction or forecast the economy are inherently flawed, because to do so would mean that one is able to predict the actions of billions of people, which is a complete impossibility. Political shifts, economic uncertainties, and media narratives often cloud investors’ judgment, often leading to poor or hasty decision making. Rather than succumbing to the onslaught of daily opinions or political rhetoric, successful investors focus their time and energy in gaining a deep understanding of individual businesses, the managements who run them, and how efficiently they make use of their assets and capital.

Moreover, it's imperative to challenge conventional wisdom and adopt an inverse thinking mindset. Charlie Munger would often chime in “Invert, always invert.” Let’s take, for example, the astronomical level of government debt that seems to keep multiplying. Well, the debt has been piling up for well over 15 years, and back when the number was Ten Trillion, it was a very large and scary number. Yet, it has not kept the stock market from its ascent. So, what if that level decreased to $25 trillion...would that be better? What about $15 trillion...or $10 trillion? At what level would the debt be deemed “reasonable”?

Perhaps it would be better to focus on how much freight has been, and will continue to be, hauled by Burlington Northern Railroad, or the amount of Coca-Cola beverages consumed, or the number of packages FedEx delivers, etc. Take a look around your home, and you’ll realize how many public companies are involved in your daily life. That’s what moves stocks, not some guru’s forecast, and certainly not any promise made by a politician.

At the heart of our investment philosophy lies a steadfast commitment to client success. Our door is always open for meaningful conversations about our investment programs, market dynamics, and any concerns that may arise along the way. As we navigate the uncertainties of the future, our goal remains unchanged: to empower our clients to achieve long-term investment success and financial prosperity.

“The big money is not in the buying and selling, but in the waiting.” - The late, great Charlie Munger

To learn more contact Check Capital at (714) 641-3579 or info@checkcapital.com.