Don’t Worry, The Odds Are In Your Favor Says This Value Investor

There has been much debate about whether value investing is dead, but John Buckingham of Kovitz, editor of The Prudent Speculator, says the naysayers have it wrong. During a webinar given in partnership with ValueWalk, he busted the myths associated with value investing and explained why it still works.

Patience, discipline and courage

Buckingham noted that it just isn’t a good time to be holding cash right now. He also explained that without these characteristics, investors can’t be successful.

“Without having the patience, discipline, courage, if you will, to stick with stocks through thick and thin, it doesn’t matter what stocks you own if you’re sitting in cash right now,” Buckingham said. “Whether the Dow is at 7,500, the Dow is at 18,000, or the Dow is at 31 or 32,000, we’ve delivered the same message, which is that you buy and harvest a broadly diversified portfolio of undervalued stocks for their long-term valuation appreciation potential.”

He added that this practice sounds pretty dull, but it’s proven successful over the long haul.

According to Buckingham, it doesn’t matter how much research investors do or how “smart” they are. It’s whether they are correctly wired, and the longer they stay in the market, the better they will do. He believes patience is critical for achieving success in investing.

There will always be another selloff

Buckingham noted that selloffs, downturns, pullbacks, corrections and bear markets will always be something investors have to deal with in their long-term financial performance. Stocks are volatile, so there will always be declines, bear markets and corrections. Thus, Kovitz still publishes data to show people what has happened historically.

“On average, we have a 10% decline every 0.9 years, so more than once a year on average, so if a 10% decline’s going to cause you to get out of stocks, I think you should get out of stocks now and not be doing so after the 10% decline because they’re inevitable,” Buckingham said. “Five percent declines happen every 0.3 years, so three times a year on average, so volatility is normal. Volatility is the price we have to pay to achieve these good long-term returns.”

However, he added that the good news is that advancing markets happen with similar frequencies, but the gains’ magnitude is far greater than the extent of the losses over the long haul. Buckingham also said that they hadn’t avoided any past downturns because they didn’t have a crystal ball. According to him, the key is not to get scared out of those pullbacks.

Buckingham calls out mainstream media

He also noted that the mainstream media plays a significant role in the panic that grips the markets.

“The media doesn’t do us any favors,” Buckingham said. “Our good friends at CNBC like to trumpet and accentuate whatever direction stocks are moving in. They’re not helping you make money; they’re selling advertising. When things look awful, it becomes very difficult to compete with that from an emotional standpoint. Everything you’re being fed is not that it’s a buying opportunity. Usually the headlines are not exactly positive. If you see CNBC having a ‘markets in turmoil’ show, you should be buying stocks hand over fist, not dumping.”

Buckingham noted that stocks have historically returned 10% to 13%, so the odds are in investors’ favor.

Don’t treat Wall Street like a casino

Warren Buffett famously advised investors not to treat the stock market as a casino, and Buckingham echoed the same sentiment during his webinar. He said many people see Wall Street as a casino, but for those in the game for the long haul and are adequately diversified, the odds are in their favor. Stocks and earnings go up over time, so investors who remember that can hopefully avoid the “frightening events that cause you to panic and bail out.”

Buckingham added that value stocks have been doing well since Halloween. Moderna’s and Pfizer’s COVID vaccines were reported to be 95% effective in November. He explained that eventually, therapeutics and vaccines would make life move back toward normal. Buckingham also said things that look like they’re going to be fatal usually aren’t.

He looked at how the markets have fared during past virus outbreaks. The last virus was HIV/ AIDS in 1983, and although that virus is still here, the markets have performed extraordinarily well. Buckingham also said by the time the mainstream media acknowledges there’s a problem, the stock market has already bottomed out, which is what happened with COVID.

“Viruses have not killed the market, and we don’t think they will,” he said. “Going back to the Spanish flu, which was worse than COVID, the stock market went up during the Spanish flu in 1918, 1919.”

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