The above heading may sound a little extreme and is not entirely true. I must confess I no longer consider myself young. What is true though is if I could wind back the clock 20 years to when I was in the earlier stages of my career, I would have preferred the share market to crash and remain at cheap levels for a decade or two.
Although I began my career in 1994, it wasn’t until the end of the 90s until I felt my salary was at a level where I could think about saving amounts to invest that could make an impact. This happened to coincide with the US share market trading at what many regard as the most expensive levels ever.
The primary years for me when I could invest savings into the market occurred between 2000 & 2015. Because the starting point for investing in the late 90s was extremely expensive valuations, what followed in the 2000s was the worst decade for US stock returns. Whilst the market did fall substantially in the early 2000s, it started at such lofty levels that it arguably never reached the stage where most investors thought valuations were very cheap. The bear market in 2008 provided bargains for a year or two, before the latest long running bull market has quickly led to expensive valuations once again. In my prime investing timeframe lasting about 15 years I may have only had a couple of years to buy US shares cheaply. Now if the market crashes, I personally will unlikely have the salary coming in that I once did to fully take advantage of such an opportunity.
Contrast this to someone who had their prime investing years between 1965 & 1980. This coincided with some of the cheapest valuations we have seen in the US share market. It provided an opportunity for them to accumulate a larger share portfolio in terms of its future earnings potential. If this person happened to cease earning a salary in 1980, they still had the luxury of selling shares into generally strong markets over the next two decades to help fund their spending habits. The 1980s & 90s provided some of the best returns ever seen in US shares. It highlights the long-term picture that there may be stages in your life that you are a net buyer or net seller of shares, and these periods may span decades. Ideally like in this example, if you happen to be a net buyer when markets are cheap, and a net seller when markets are expensive then this can make a huge difference. Current market fluctuations may be better viewed in this light.
We tend to get caught up in the short-term fluctuations in share markets when managing our portfolios. Have you found yourself frustrated when you take a plunge into the share market, then see the investment fall only months later? If you are in the earlier stages of your working life, then maybe you should be pleased instead. After all, in broad terms you are likely to be a net buyer of shares for a couple of decades, so why wouldn’t you welcome cheaper prices?
On the other hand, have you heard relatively young friends or colleagues boasting about achieving excellent returns in US shares over the last few years? Rather than celebrate this, it may be counterproductive to their long run goals. Whilst they may have enjoyed gains on their existing investments, their portfolio size during these earlier stages of their lives may be tiny compared to the amounts they expect to invest into the market over the next decades. In simple terms, they are still a net buyer of stocks for many years to come, and should see expensive share prices as more of a hindrance than help.
Focusing on the long run goals are likely to produce the better investing outcomes. For those in the earlier stages of their working career, getting too swept up in the enthusiasm behind this latest bull market may not be that rational. Contrary to one’s natural instincts, a long running bear market could even be something to get enthusiastic about, whenever that time may come.
This is a guest post from Steve Green. Steve is a full-time investor based in Australia, with a focus on global asset allocation, event-driven and activist investing strategies. You can follow some of his ideas at his investment blog here at www.stevegreeny.com