Waiters Are Gonna Wait

Back in September 2017, I started doing webinars about various investing topic. This reminds me of my good old times when I was working with clients. While I can’t and don’t provide buy/sell recommendations or personal financial advice during those sessions, I still enjoy the interaction I have with other investors. As a private banker, I enjoyed doing conferences and “teaching” how the investing world works. Now, I can reach thousands of people instead of a few hundred clients. If you haven’t attended to any of my webinars, you should register to my free newsletter, you will love them!

I did an exclusive webinar to DSR members not too long ago. The topic was to get rid of the buy/sell struggle. You know the second guessing feeling you have before you pull the trigger? The doubts that make you suffer from paralysis by analysis? This is what I was addressing. As an introduction, I was telling my attendees that I received my pension plan commuted value back in September 2017. I received $108,000 back then… yeah, that’s a lot of cash for a 36-year-old kid! Then I asked them if they thought it was a smart move to invest all my money back then… At an all-time high market. Guess what? Lots of attendees told me it wasn’t a smart idea. As I was saying… buy/sell struggle. And as the popular song goes…

My experience in investing 100K during an all-time high market

When I received my money, here’s what the market looked like:

Source: Ycharts

Over the past 5 years, the S&P 500 almost went up all the time. There were 2 small speed bumps in 2015-2016 but it quickly bounced back. As for the Canadian market, it was a little bit more complicated. The oil bust and the low prices of commodities slowed down investors’ enthusiasm. While there were some fluctuations, the TSX was still up though… So as many readers of this blog were telling me to wait and see where the market would go back in September, I decided to invest all my money by the end of the year. Interestingly enough, even after the small market correction (which has already disappeared), it was worth it:

Source: Ycharts

As you can see, both markets are still up since September. Even better, my own performance (as of February 9^th) are a lot better than this:

That’s right, I’m showing a 5.1% return on my Canadian portfolio and nearly 11% for my US investments. My numbers were even better the week before the crash. Therefore, what was the reason to wait again?

Wait for the crash

The crash? What crash? Let’s get over the crash myth once and for all. The rationale behind waiting for the next market crash before investing could be detailed in a few points:

01 Market crashes create buying opportunities – yes

02 Investors who put their money in the market in 2009 show amazing returns today – yes

03 The next crash will come – yes

And then you sit and wait, and wait and wait. You look like this poor girl staring at her phone and desperately waiting for her crush to text her. If the guy is in love, he will eventually text her. So what is the point of sitting on your bed waiting for his text message? Just go on, live a normal life and you smile when the text arrive. Don’t stop living and wait instead. This is why we should add a few more points to the previous rationale:

04 The more you wait, the fewer dividends you get paid – yes

05 The more your wait, the more expensive stocks become – yes

06 The more you wait, the less chances stocks will get back to their previous crash level – yes

I like to use 3M Co (MMM) as an example to illustrate how waiting is bad for your portfolio. I wrote an article about 3M (MMM) back on November 2^nd 2016 here. If you look at the comments, many investors adept of FAST Graph were saying the entry point for MMM was $155 (the stock was trading around $165 back then). Then, many investors are waiting to catch MMM at $155 while I bought it around $165.

Source: Ycharts

The overcome here is catastrophic. Waiters lost a 40% loss on their investment. Even worst, they missed $6.06/share in dividend (assuming you missed the November 2016 payments). At $165 per share, this represents 3.67% of your investment. But there’s more to the catastrophic story. MMM is currently trading around $235 (as at February 16^th when I wrote this article). In order to drop back to $158.94 (the November stock price of $165 minus dividend paid), MMM must lose 32% of its value. While this is possible, it is very unlikely. As you can see on the following graph, MMM stock dropped by -31.8% (wow… it’s like I’m making numbers up!) during the worst market crash ever:

Source: Ycharts

An even then, this graph shows only the stock price return, it doesn’t include the dividend. Therefore, only 15 months after you thought that MMM was overvalued at $165, it is virtually impossible to catch it back at this price… EVER.

Final thought

There is always a possibility that MMM drops at $150, after all, everything is possible, right? But on which side do you wish to be? On the side of investors getting paid quarterly and never have to worry about the market noise, or on the side of investors that are sitting on the bench and watch a very good game without playing.

If what you just read makes sense, I think you should definitely sign-up to my newsletter and get my exclusive webinars for free, don’t you think?

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