As someone who writes for the newspaper, I feel that my role is to communicate useful information, regardless of whether it is pleasant to read or not.
This week, I want to share with you some difficult news that will surely not make you jump for joy: financial investments have been on the rise for a year.
I know, it’s sad. Let me explain.
From 1er January 2023 to 1er January 2024, a balanced portfolio (60% in stocks, 40% in bonds) experienced growth of 10%, in addition to dividends paid during the year.
A person who invests money this month can therefore acquire 10% fewer financial assets than on the same date last year.
Pascale, a reader, writes that she started buying $500 in Exchange Traded Funds (ETFs) every month since January 2023.
“I am surprised to see that the variation in my assets has been positive over the whole of 2023,” she writes. I’m happy that I followed my plan all year. »
I expected to be yelled at by Pascale. But no ! She is delighted with the reduction in her purchasing power!
Warren Buffett’s cars
I know it’s rewarding to see the value of your investments increase. We tell ourselves that we did the right thing. That we made the right decision. That we got rich.
This is all true. But unless we’re already retired, the nice green numbers in our investment account also mean that we pay more for the new investments we buy each payday or every month. And that shouldn’t make us happy.
Warren Buffett addressed this issue in his letter to Berkshire Hathaway shareholders in 1997.
“If you plan to eat hamburgers throughout your life, should you want higher or lower prices for beef? he writes. Likewise, if you are going to buy a car every now and then, should you prefer higher or lower prices for cars? »
To ask these questions, he says, is to answer them.
“Now for the final consideration: If you plan to invest money over the next five years, should you expect the stock market to rise or fall over that period? »
Many investors get this wrong, Buffett says. Although they will be buyers for many years, they are happy when stock prices rise and depressed when they fall.
In fact, they are delighted with the rise in prices of the “cars” that they will soon buy, a reaction that does not make sense.
Only people who will sell stocks in the near future should be happy about rising prices. Potential buyers should much prefer lower prices.
Warren Buffett of Berkshire Hathaway
Buffett invites us to mentally view an increase in the value of our investments as a trend that is not in our best interest.
For investors who understand this, months or years when investments are down are as pleasant as a sea breeze in July.
I’m in a good mood when the stock market is flat. And I smile when the stock market falls are so spectacular that they make their way into the opening of the 6 or 10 p.m. newscasts.
The reports then have severe, dramatic titles. “Black day on the world’s stock markets. » “Panic on Wall Street. » Perceiving inflections of worry and dismay in the voice of Patrice Roy or Michel Jean is a sweet sign that the bargains are back.
I don’t wait for falls to invest. All studies on the issue have shown that the best time to invest is when you have the money to do so. But I like seeing red numbers when I click “buy”.
Montreal billionaire investor Stephen Jarislowsky says he loves these intense moments.
“For me, the stock market panic is happiness! he told me a few years ago. No panic lasts long. In a panic, you buy something that is real, but whose price has temporarily decreased. »
Unfortunately, falls are rare: seven out of ten years have historically resulted in an increase in the stock markets of developed countries, as was the case in 2023.
The Financial Markets Authority (AMF) maintains a revealing table on periods of decline of more than 20% in the Canadian stock market (S&P/TSX composite index). If falls scare you, this is the perfect antidote to stick on your office wall.
The AMT has documented 11 falls of more than 20% in Canada since the end of the 1960s. These falls were -35% on average. It took 2.3 years on average to return to the previous peak. And the average return in the four years following the falls was 21% per year.
“Stock market crises can be stressful,” concludes the AMT. However, if we rely on past events, investors who have shown patience and composure by not giving in to panic and avoiding selling at the worst time tend to be rewarded during subsequent increases. »
This should offer comfort even to retired people who live off their investments. Historically, 100% of declines in the value of the Canadian stock market have been reversed. Patience pays off in investment.
Will the markets stand still in 2024? Or, better, give us the gift of a stock market fall?
No one knows. An investor can always dream.