By Gregg Pacitti CFP®
Patience is a virtue. You’ve heard this before, probably at a time when you least wanted to hear it. Like when my teenagers are still half asleep and dressed in their gym shorts while I’ve got my car keys in hand ready to leave for Sunday church. The last thing I am thinking about in that moment is being virtuous when my wife attempts to calm me down. Exercising self-control when my patience wears thin – that’s different. That’s a skill. Investing also requires emotional self-control and patience. It’s not easy when things don’t appear be going your way. But, sometimes you just have to step back, take a deep breath, and do nothing. Like not pulling my kids down the stairs by their ears when I’m in a hurry.
Last year there were some good lessons in patience. Two come to mind. The first, dealing with market corrections. Yes, last year’s stock selloff was a scary one that came fast and with much force. But by year end, those who made emotional decisions and sold stocks did not fare as well as the “do nothing’ers.” Could stocks have gone lower for longer? Absolutely. But given enough time, stocks have ALWAYS recovered and reached new highs. Truth be told, it’s near impossible to sell at the top and buy back in at the bottom with consistency. Most people end up buying back in at much higher prices when it feels like things are better. So, lesson #1: Don’t react to your emotions during market corrections. It will get better, it always does.
Second, the investment strategy/style you choose to implement also requires patience. Last year was the era of technology stocks. Tech was red hot and Covid-free, finishing up the year over 40%. Do you know what style eked out a mere single-digit gain? Value and dividend stocks. Yes, the very ones we recommend to our retired clients seeking income. Now, emotions might tempt you to abandon this highly successful, cash-generating investment style and go “all in” on the hottest tech names trading since the dot com era. But that would be a mistake since sectors go in and out of favor like changing seasons. In fact, since the start of 2021, value and dividend stocks have already doubled the performance of tech stocks. It appears that price, valuation, and a reliable cash dividend payment are all beginning to matter again – like they always do in the long run. Lesson #2: Don’t chase returns. They will all have their moment in the sun.
It should be a good year for all styles of stocks, however, dividend stocks are taking the early lead. We believe that we are only halfway through a long-term 20 year bull market that began in 2009. Nothing goes straight up or without challenges along the way, but do not doubt that the bulls are running. Enjoy the ride. Be patient.