| S&P has dropped nearly 25% as of yesterday morning (29 September 2022). This has happened twice in the last 15 years; first the Global Financial Crisis (GFC) and second during the pandemic. There are lots of negative headlines out there that may cause a knee jerk reaction to go to cash. What would happen if you implemented one of the below three strategies each time the S&P 500 fell over the last 15 years? 1. Did nothing? 2. Moved 100% to cash after a 25% fall then invested a year later? 3. Moved half to cash after a 25% fall and then invested year later? There are lots of graphs around about going to cash at the bottom of the previous two major sell offs and the damage that is done, but who knows when that bottom will be in. We are worried about the here and now, and it may not be the bottom, but even if it isn’t and we drop 50% (peak to trough) as during the GFC, you would still have been better off not trying to time. People always forget that these pundits that are the biggest bears and finally get the call on the bear market right almost always get the timing wrong for getting back in and destroy capital over the long term as a result. Most importantly you will see that if we are indeed closer to the bottom as was the case with the pandemic you do the most damage. Key take aways from performance for period 3 December 2007 to 27 September 2022 1. Did nothing = up 204 % and recovered from GFC losses by March 2012. 2. Moved 100% to cash after a 25% fall then invested a year later = up 99% and recovered fully from GFC losses by Jan 2012. 3. Moved half to cash after a 25% fall and then invested year later = up 154% and recovered fully from GFC losses by Feb 2012. A very interesting takeaway is that even if you went to cash during the GFC after the first 25% fall you only improved your recovery time by 2 months! |
 Information courtesy of Jacques du Plessis from Graphite Advisory. |
