Last week, just as people were getting underway with their new year, markets around the world opened in steep decline. Although it is not officially a bear market, that burly beast is on the tip of many an investor’s tongue - and mind.
Are we heading into a bear market? That remains to be seen. But bear markets happen periodically, and what’s most important when they do occur isn’t when they happen. Rather, it’s how you react to them. Avoiding panic during bear markets is key to successful investing – and to building long-term wealth.
If you look at the stock market over the past century, there are several important things to note and remember. First, markets are cyclical - an endless stream of ebbs and flows, gains and losses, highs and lows. In addition, over time, they’ve gone up more than they’ve fallen – yielding consistent, steady gains over the long term. Past performance doesn’t guarantee future results, but this trend is long-standing.
Even more beautiful is that low points in the market are when there is the greatest probability of future gains. Periods of high performance begin when current performance is low.
It’s natural to consider selling when stocks are on the decline, but that is exactly what you don’t want to do. In fact, investors who succumb to fear and sell during bear markets can do significant damage to their long-term wealth. Not only are they selling when returns are at their lowest, they are selling when the odds are greatest that future returns will be high.
So, whether the next bear market is still in the future or at our doorstep right now, we invite you to stay present to the cyclical nature of the market, and see the opportunity such an environment provides. SRI investors are patient investors, having faith that in the long run their prudent investments in the companies that have the best chance of leading a sustainable economy will pay off, for them and the world.