Stay the Course

TEOI Exhibit 10
TEOI Exhibit 10

There are going to be bad years in the investing world. That is a fact. To expect to have high returns on all your investments every year is simply unrealistic. The difference between the ordinary investor and an extra-ordinary investor is how they react when a “bad” year comes around.

Let’s do a thought experiment. You are a successful professional who has built up a large amount of money and you start to invest it. You then build a portfolio that is diverse and begins to produce high returns. Everything is good right? Well, then comes a market bubble that bursts and shakes up the whole investing world. What happens to your money? You start to loose it. Now what do you do? Panic?

It is natural to want to panic and back out and try to cut our losses. But we do not want to do what is natural—the ordinary thing. To be extra-ordinary we need to understand that bad years do come, but they also go.

Statistically, for every one bad year the market has three positive years (the figure above). The fact is that if you build a good portfolio and stay the course you will make money in the long run. The trouble comes when we look at our investments short term. Allow the markets behave according to history. Stay the course and you will be successful.

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