I believe that it is difficult but also very helpful for investors, during challenging times like we are experiencing now in the financial markets due to Russia invading Ukraine, to focus on our future and the plan that we have developed for ourselves and our families. I believe that remembering one aspect of how people used to invest long ago can help investors stay the course.
Back in the day, if you purchased a bond, you received a bond certificate, which was an actual piece of paper. (Historically, bond certificates often were beautiful works of art that involved commissioning talented engravers and artists to incorporate aspects of a firm’s history or operations into the imagery.) Investors would simply take the bond and put it into a drawer or other safe place. This was especially important since bonds were issued in the form of bearer certificates. Physical possession of the certificate was the only proof of ownership since bearer bonds were unregistered, that is, there were no records kept of who owned the bond or any other transactions involving ownership.
Several coupons, one for each scheduled interest payment, were printed on the certificate. Once a month or once a quarter, you would physically clip the interest coupon due and mail it in to collect the money (an act not surprisingly called “clipping the coupon”).
Investors did not concern themselves that the actual value of that piece of paper sitting in the drawer was going up and down in value throughout the trading day. It was not a concern as they received their interest payments and their principal would likely be returned upon maturity.
Instead of worrying about the day-to-day movements occurring in the stock market, investors would purchase shares in the great companies in the U.S. and the world and leave the stock “certificates” in the drawer collecting potential dividends through time.
This mentality would be a great approach for the modern-day investor. It would be helpful if investors would only take the stock certificates out of the drawer when their needs required them to do so. They would not concern themselves with what the market was indicating the shares were worth at any particular moment — especially when fear gripped investors.
People take this approach all the time with their homes. They have a general sense of what their home is worth, but do not pay particular attention to the month-to-month variations as they are occurring.
Can you imagine if every night when you came home from work and drove up to the front of your house, there was a glowing sign showing you in dollar terms what a buyer would pay for your home? The sign would also indicate the house value in the percentage that it changed from the day before. Ridiculous you would say.
Do you ever think you should sell your house today at a low price because your neighbor sold theirs? Never. You never think of selling your home until your personal circumstances dictate. Your neighbor may have to sell because of poor cash management, or their circumstances required them to do so.
Why not take this approach when investing in bonds and stocks? It would save you quite a bit of angst and prevent you from falling in line with the crowd and selling shares at values that you would later regret.
Centuries ago, French statesman and author Michel de Montaigne said, “my life has been filled with terrible misfortune; most of which never happened.” Are you constantly worrying and always expecting the worst of the stock market? If you are, the stock market will disappoint you consistently over the long haul.
Take comfort in the long-term track record of the publicly traded stock markets and use that track record to achieve your opportunities.
de Montaigne also said, “not being able to govern events, I choose to govern myself.”
Words to live by during these crazy times.
Hope you have a great week!
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