It's 3.45am on Tuesday morning.
And, because I'm awake, I thought I'd do some writing.
As I contemplated what I'd write about, I wondered what many people may assume about me being up at this time.
Maybe that I couldn't sleep, for worrying about recent stock market volatility.
Maybe that I was up watching US markets during their daytime.
It's nothing quite so… exciting.
I'm awake early because my young bloke has been crook for the past few days, and he slept in our bed last night. The phrase 'human windmill' comes to mind and, well, it can be hard to sleep when there's so much tossing and turning!
Plus, he's also going to be off school again today, so I might as well get some work done while I can…
But it was those thoughts – that I might have markets on my mind – that prompted this piece.
See, neither of those things – worrying about volatility or 'watching' the markets – is something I do.
Surprised?
If you're a regular reader, I hope not. If you're newer here, you might wonder.
Aren't investors supposed to have three or four computer screens on their trading terminals?
And 'money never sleeps', right?
Now, you're smart people.
You know that by asking those rhetorical questions, the answer is clearly 'no'.
But I want to explain why.
The truth is that I can't remember ever being kept awake by the stock market.
And I invested during the dot.com boom and bust.
I invested during the GFC
And I invested during the COVID crash.
Don't get me wrong, these were very unpleasant periods, where portfolios were often deeply in the red.
They were painful, ugly times.
But I didn't lose any sleep.
No, I'm not boasting.
Nor am I super-human (or super-Vulcan, for the Star Trek fans).
I was just lucky enough to have learned, early, about the historical truth of investing.
More importantly, I was lucky enough that I was able to internalise that truth, and make it the centre of gravity for my investing.
And I can't overstate how important that has been for me – or how important it could be for you.
See, the saying 'those who fail to learn from history are doomed to repeat it' might be true in many aspects of life.
But I think it's the opposite for investors.
The lesson of history on the stock market is that compound gains of around 9% per annum have been the norm.
And that patiently investing – saving, adding, and waiting – has been an extraordinary way to build seriously impressive long-term wealth.
9%, compounded over the 30 years to June 30, 2022, would have turned a hypothetical $10,000 investment in the ASX into $130,000.
(And, happily for my narrative, that includes all three crashes – dot.com, GFC and COVID – that I mentioned earlier.)
If we're 'doomed' to repeat those gains, bring it on!
Oh, in case you're tempted to think 'ah, but the dot.com crash was worse in the US', you're right. But $10,000 invested in US shares actually compounded at a faster rate than on the ASX over the past three decades, despite that!
But back to me.
When I started investing, I was able to learn and internalise that long-term history.
And to come to a place where I believe, as Mark Twain is quoted to have said, 'history may not repeat, but it does rhyme'.
Now, for those who are wringing their hands about what we're facing, economically, let me be clear: no, I don't think it's different this time.
I mean, we face different challenges, for sure.
Kinda.
This episode of high inflation might be new if you're young, or haven't studied history.
But it's a pretty good echo of the early 1980s.
This global instability?
We've had more episodes of it than you could count on two hands, over the past century, and yet the ASX has gained around 9% per annum over that time.
(Remember: two world wars, numerous regional wars and conflicts, a cold war, high oil prices, high inflation, terrorism and much more.)
Now, I'm NOT saying we won't have market volatility.
I'm saying precisely the opposite.
We'll have volatility – just as we've had in the past.
But I'm saying I think the world's stock markets will continue to deliver strong, long-term compound gains, despite that.
Why?
Because I don't think humanity has peaked.
I don't think we'll look back and say "Yeah, 2021 was the best that democratic capitalism ever got… It was all downhill from there."
I think our best days are ahead of us.
And I think that means history is likely to repeat… or at least rhyme.
And it's why I don't get stressed – or lose sleep – about market volatility (or, less euphemistically, share price falls).
Because I have been taught to – and I've internalised the process of – zooming out.
In 1992 – the start year for the 30-year numbers I mentioned earlier – we'd just got out of recession.
Though we didn't know it at the time, five years later, we'd have the Asian Financial Crisis. Then three years after that, the dot.com crash, where the NASDAQ would lose some 85-odd percent of its value.
Who in their right mind would have invested in 1992?
Especially when you layer in a future that included terrorist attacks, wars in the Middle East and Afghanistan, a US housing collapse, the freezing of global credit markets and the worst pandemic in a century.
And they're just the big ones. Every week, someone was telling you what was about to go wrong. 'It's the big one', they'd say.
Sounds like a recipe for terrible returns.
And here's the thing.
Even if those doom-and-gloomers had been able to accurately predict every single one of those terrible social and economic issues…
… you still could have turned $10,000 into $130,000!
And that is the lesson I've internalised.
(By the way, I'm not cherry-picking data – that average return holds pretty true over more than a century, with even more economic, social and geopolitical ructions during that time!)
The beauty of internalising that lesson?
Being able to zoom out means you don't sweat the small movements.
Or even the big ones.
The ASX lost 38% in a touch over a month in early 2020.
Thirty. Eight. Per. Cent.
It sucked.
But I didn't lose any sleep.
Why?
Because of the lessons of history, and my confidence in the long-term value creation of democratic capitalism.
In a world where people want to tell you, at every turn, how complex and difficult investing can be, I humbly disagree.
It is that simple.
I think the future is bright, not because there are no obstacles for us to climb, but despite the fact there are obstacles to climb.
It has always been thus.
And that's the lesson of economic and stock market history.
And that's why I don't lose any sleep.
It's also why I don't have four monitors with squiggly lines on them: because I'm playing a different game.
Embracing the power of democratic capitalism means taking a big-picture view, not a minute-by-minute, heart-attack-inducing roller coaster ride of trying to guess short-term share price movements.
One last (related) thing: the shorter your chosen time horizon, the more stressful investing can be. But also, the less likely it is that those long-term forces will play out.
If you're hoping for gains in a day, a week, a month or even a year, you're taking a punt.
But also, I think you're lowering your odds, perhaps meaningfully.
Because history also tells us that the longer your timeframe, the more likely you are to achieve results closer to that long-term average.
And don't forget: with lifespans continuing to lengthen, even a retiree has likely got decades of investing potential left, let alone someone in their 30s, 40s or 50s.
(If you're 50, you've been an adult for 32 years. And you'll probably live, on average, another 35 or 40 years. You have more investing time ahead of you than behind you!)
Me?
I'm continuing to add money to my portfolio every month.
And I'm investing that money with a multi-decade time horizon.
Which means that whatever happens today, tomorrow, this year or next year is all but irrelevant.
But which also means I expect that in 2052, we'll look back at 2022 and wish we'd all invested more money, today.
And that perspective is why I don't lose sleep thinking about my portfolio.
Now, if only I could find a way to stop a 9yo tossing and turning, I could go back to bed…
(By the way, if you haven't seen it, I recorded this video last week, when the US market fell. Different circumstances, but same theme. Have a look, if you haven't already.)
Fool on!
