CKBlog: The Market

Thursday, March 12, 2020

10% from the Bottom

You have no idea when the market will bottom. I have no idea when the market will bottom. Our CIO, who has been investing for 50 years (sorry Dad), has no idea when this market will bottom. No one does.

Why? Because as far as I can tell, none of us perfectly called the top of the market so why would we expect to have the ability to call the bottom?

Some of our clients have been putting cash to work in this environment. A common question has been, “When is the right time to invest?”

We’ve been recommending to do so in tranches. Once we have established a dollar amount to invest, we develop a plan to invest over the course of 3, 5 or even 10 purchases. That way, you are likely to buy well on some and poorly on others. Net-net you feel ok about it.

Within 10%

If we cannot pick the actual bottom, what if we got close? My father has often said, “you’d be happy to get within 10% of the bottom.”

So let’s see what that would look like had you been making an investment around the S&P 500 Index low during the Financial Crisis (which occurred March 9, 2009).

10% before the Bottom

If you bought 10% before the actual bottom, the S&P 500 Index delivered a +13.88% annual return through today (03-12-20):

The Actual Bottom

If you bought the actual bottom (technically the day before)  the S&P 500 Index delivered a +15.11% annual return.

10% After the Bottom

If you bought 10% after the market bottom, the S&P 500 Index delivered a +14.50% annual return:

As you can see, over a 10+ year period, your life didn’t meaningfully change by picking the very bottom of the sell-off. So why try now?

During the crisis, we witnessed folks try to perfectly time the market bottom only to miss it altogether. The market charged higher and these investors missed out on sizable gains.

I have no idea when this sell-off will end. But as of now, stocks are 25% cheaper than just 3 weeks ago. If you have cash to invest and your plan calls for stocks, build a plan to execute. If you get within 10% of the bottom, you’ve done ok.