What I learned about investing this week

This past Thursday, I brought in a speaker for Andover Business Club.  Mr. Charland is the CEO of Wilkins Investment Counsel in Boston, and he came talked to Andover Business Club about personal finance and money management.  This club meeting was a little different from what we usually do.  ABC is a 100% discussion based club, but this one time, our meeting involved more listening than speaking.  I thought the topic was also a little bit different than what we usually talk about, which is business, marketing, timing, and how to launch products etc.  This time, we learned a little about investing.  

According to Charland, the biggest mistake people in our era are making, is selling as soon as the markets begin to go down because of panic.  I think panic is both my friend and my enemy.  I despise panicking on major assessments, but in this scenario, it is actually a good thing to buy when everyone else to selling (or panicking).  I learned that in a bull market, the last 25% will account for 40.2% of the gain on average, and the last 25% of a bear market will account for 46% of the drop.  A bear market will also, on average, occur every 7.3 years.  

There were many interesting stats that I learned, and another interesting one was about long term investment.  My dad always told me to think long term and leave the stocks for long term.  Now, I have data and history to prove this. Charland printed out a slide showing how longer holding periods reduce risk.  It’s quite a dramatic chart.  For an S&P 500 portfolio, holding for one year could at a minimum value, make an investor lose 43%.  This again, has to do with emotions and panic.  If an investor sees a stock go down, they panic and start to sell everything which ultimately leads to losing more money than he/she started with.  However, on the other end of the spectrum, holding an S&P 500 portfolio for any given 20 year period, according to history, shows that one cannot possibly lose money.  I find that stat very interesting.   In addition, there is a chart that shows the power in starting early.  I think this is especially important in our era, where managing our finances is becoming increasingly important.  Charland showed us a chart depicting how investing early really makes a huge difference.  Giving more time to invest before retirement is a no brainer.  

Charland believes that many more people could have a million dollars right now than people who actually do, simply because of this one thing: emotions.  When an investor sees that suddenly, one day, half their capital is gone, is can be very startling and can cause panic.  However, Charland reiterated many times to push past those days, because there are stats that show the power in longer holding periods. I liked how Charland printed out copies of the slideshow for all the participants at our meeting.  When I first looked at these charts, I was very confused and I didn’t understand what any of it meant.  Now, I look at this 14 page slide show and I think can explain almost every chart.  It amazes me how much one can learn in 40 minutes.