Investment Insights

Sticking to the Plan

  • Nov 09, 2023
  • Craig Farley

‘Investing is simple, but not easy’, is one of legendary investor Warren Buffet’s most quoted axioms.

It implies that the basic logic of investing and compounding returns over the long term is simple, but human psychology and emotional behaviour constantly serve to spoil even the best laid plans. In short, the worst enemy on the investment battlefield is us.

The issue often rears its ugly head during times of market dislocation and stress. At the time of writing, investor angst is on the rise as the ‘laundry list of worries’ gets longer with each passing week.

In addition to the trillions of dollars in government debt that needs to be serviced, generational high interest rates across the western world putting the squeeze on borrowers, and a looming global recession, acute geopolitical tensions have resurfaced on account of a hot war in the Middle East.

During these episodes, things can feel more uncertain, prompting a desire to refresh news headlines and check one’s portfolio valuation more frequently than usual. Worse, they can prompt an impulse or desire to act, to do something to alleviate the short-term pain that investment losses can inflict.

Such decisions, often made in heat of the moment, are typically based on irrational, subjective, short-term inputs, in direct contrast to the characteristics exhibited by the rational investor. The result is often damaging to long term portfolio outcomes as assets are transferred from weak to strong hands.

What may feel like cold comfort, but which should (re)instil confidence, is that the future is always uncertain. Investing deals in probabilities, never certainties. In this regard statistics and batting averages matter.

As shown in the table below, since 1928, the US stock market has averaged a 10% correction in roughly two-thirds of all years, a bear market (greater than 20% correction) every four years, and a ‘crash’ of 40% or worse once every thirteen years:


The average peak-to-trough drawdown in any given year going back to 1928 has been a little more than 16%. In the last nine years, including 2023, the large cap S&P 500 index has experienced a double-digit correction 5 times.

Now the good news.

Since 1928, the stock market has been up approximately 75% in any rolling 12-month period. Those are decent odds. However, extending the period out to longer term time horizons materially improves those odds, as shown in the table below:


In simple terms, the stock market goes up most of the time. Occasionally, it goes down. The correction witnessed in asset prices over the past two years should not be a surprise given a) the extent that prices moved over the previous decade, and b) the strong headwinds currently buffeting the investment landscape.

We should attempt to frame these corrections as normal, the cost of doing business. In less than four years, investors have endured a global pandemic and subsequent worldwide economic shutdown, negative oil prices, Russia’s invasion of Ukraine, the highest inflation in forty years, generationally high interest rates, and insurrection at US Capitol Hill. And yet markets have weathered the storm.

No one can look around corners and forecast the future with certainty. Current, and future, corrections will tend to feel a little different because markets are adaptive, constantly changing and evolving. That means preparing for a future that might not necessarily resemble the past.

Have a clear, goals-based, long-term investment plan in place. And be like Warren. Stick to it.

TEAM Asset Management is a trading name of Theta Enhanced Asset Management Limited which is regulated by the Jersey Financial Services Commission.