The rain came to the market today with an exceptional squall. Even quality companies felt the pelt of the rains.
Equity returns never move in straight lines forever. It is essential to retain a high degree of emotional intelligence. While the investment community often advocates moving from one security to another to weather storms in certain sectors, owning high quality companies for the long-term (5 plus years) is the best defense.
Good management will guide those quality companies through rough patches, but will come out the “other end” stronger and more resilient. While you can’t stop the down side of market volatility, the key is to own those firms that are skilled in navigating tough times. And, the tough times always come. This is when you see the fundamentals shine of the high quality firms relatively to those weak performers.
With each downturn, it is comforting to know that you own quality. Just keep seated and buckled up. Those who flinch will pay dear, but those who run for the exits will see pain in hindsight. The last two downturns were quick at the end of 2018 and in March of 2020. Historically, quick downturns have been much less likely than extended periods of significantly lower prices.
How low can you go? Knowing you own quality equities and staying the course are your best strategies. Quality companies owned at reasonable prices with solid fundamentals provide a margin of safety for the storms. I live in Florida and storms are always on my mind.
So limber up those knees and prepare to go low. The limbo is the toughest part of investing. So hold those cards, batten the hatches and chill out. Those who fold will regret it just as they did in 2018 and 2020.
The limbo is one hell of a dance. Don’t get caught with your back up on the wall!
Be smart, be well-read, be aware and be successful.
