Intro
Imagine that you are born with a superpower. You have the ability to invest at the worst possible time. Every time. Yes, you are the worst market timer. Congratulations.
Ok, superpower is the wrong word. It is the opposite. It is a curse. Because each time you invest, the very next day the stock market will crash. Boom. And not just any crash. The worst kind of crashes in the history of South African stock markets.
Your investment track record is bad. Real bad.
Here are the market crashes over the last generation.
| Market Crash | Total Loss | |
|---|---|---|
| Emerging market crisis | 20 Apr 1998 - 11 Sep 1998 | -42% |
| Internet bubble | 18 Jan 2000 - 17 Apr 2000 | - 27% |
| Iraq war | 23 May 2002 - 25 Apr 2003 | -34% |
| Subprime | 22 May 2008 - 20 Nov 2008 | -45% |
| Corona Virus | 20 Jan 2020 - ??? | - ??? |
And guess what. Your superpowers allowed you to invest all your savings the day before each of these market crashes . Yes, you are a real Superstar when it comes to investing.
So on 19 April 1998, you invested R 100 000. All your life savings. Lo and behold, the next day the markets start tanking. Markets are in freefall and by Sep 1998, you lose R42 000 of your original R 100 000.
Less than two years later on 17 Jan 2000, you went ahead and invested another R100 000. Your superpowers strike again. The internet bubble is about to burst. Your investment are down 27% a mere three months later.
You unleash your superpower again on 22 May 2002 & 21 May 2008. A day before the Iraq war & financial subprime crisis. A real genius.
So, how would your investments fare as the worst market timer??
After 1 year
| Market Crash | Investment Period | After 1 year |
|---|---|---|
| Emerging market crisis | 20 Apr 1998 - 20 Apr 1999 | R 89.8k |
| Internet bubble | 18 Jan 2000 - 18 Jan 2001 | R 99.5k |
| Iraq war | 23 May 2002 - 23 May 2002 | R74.2k |
| Subprime | 22 May 2008 - 22 May 2008 | R 69.9k |
| Corona Virus | 20 Jan 2020 - ??? | -?? |
Losses across the board. An entire year after investing, all your investments have experienced losses.
After 10 years
| Market Crash | Investment Period | 10 Years later |
|---|---|---|
| Emerging market crisis | 20 Apr 1998 - 11 Sep 1998 | R 469k |
| Internet bubble | 18 Jan 2000 - 17 Apr 2000 | R 324k |
| Iraq war | 23 May 2002 - 25 Apr 2003 | R 281k |
| Subprime | 22 May 2008 - 20 Nov 2008 | R 134k |
| Corona Virus | 20 Jan 2020 - ??? | ??? |
Remarkably. Despite investing at the worst possible time - a day before the stock market's biggest market crashes, none of your R 100k investments lost money over a ten year time period. Even if you take into account inflation - ie the fact that your money is worth less over time - , each of your investments still beat inflation.
What is the big take-away?
Think and invest for the long-term.
Think and invest for the long-term.
Think and invest for the long-term.
I hope this article and these numbers drive it home. We are currently experiencing another big market crash. The corona virus. Just like during previous market crashes, no one knows where the market bottom is or how long this will last. But the most important message you should get from this article is that investing in the stock market is for the long-term. Think at least seven to ten years. Anything less and you may end up losing. Over the long-term, however, it is a very different ballgame. The odds are stacked heavily in your favour. Even if you are born with the ‘worst market timer’ ability.