To book an investment return you have to invest and then remain invested.
Comedian Woody Allen once observed that showing up is 80% of success. Allen’s insight appears obvious, but showing up is more difficult than people anticipate. Showing up can be a grind that erodes will power over time.
Showing up matters in life, and it matters in investing. You have to actually be invested to collect a dividend or book a return. Many investors fail to do either because they’re unable to continually show up. Fear, boredom, disappointment, or impatience wear them down.
When I’m confident in my analysis I show up. I know that if I stay with an investment – if I continually show up – something good will happen. I just have no way of knowing when that something good will happen. No one does.
It’s worth showing up, because stock market gains are typically concentrated in just a few trading days. Failing to show up on those days can dramatically damage returns. The table below covers the S&P 500 Index from Jan. 1, 1994 through Dec. 31, 2012. The cost for not showing up, even for a few days, was steep.
The Cost of Failing to Show Up
|$10,000 Invested in the S&P 500 Index||S&P 500 Annualized Return||Terminal Value of the $10,000||Gain/Loss||Impact of Missing Days|
|All 5,037 Trading Days||9.22%||$58,352||$48,352||None|
|Less the 5 Biggest-Gain Days||7.00%||$38,710||$28,710||-40.62%|
|Less the 10 Biggest-Gain Days||5.49%||$29,121||$19,121||-60.45%|
|Less the 20 Biggest-Gain Days||3.02%||$18,146||$8,146||-80.15%|
|Less the 40 Biggest-Gain Days||-1.02%||$8,149||-1,851||-103.83%|
Source: Index Fund Advisors
What holds for the S&P 500 holds for individual stocks. I know from experience with the High Yield Wealth portfolio. Showing up pays off.
BGC Partners (NASDAQ: BGCP), a large financial and commercial broker, serves as a dramatic example of why showing up matters.
We first recommended BGC for the High Yield Wealth portfolio in November 2011. Over the subsequent 18 months, BGC shares traded flat-to-lower. Investors feared that low institutional trading volume would stay low. At the same time, BGC was positioning itself as a leading commercial real estate broker.
As BGC wandered lower, pressure grew to stop showing up – to sell. I saw it differently. I liked the opportunities BGC was pursuing in commercial real estate brokerage. I also liked the management, which saved the company after two-thirds of its employees were killed in the 9/11 attacks. I knew something good would happen. Of course, I had no idea when.
The something good happened on April 1, 2013, when BGC’s share price popped 48%. The company announced it had negotiated a sale of one of its trading platforms to Nasdaq OMX Group (NASDAQ: NDAQ). The price BGC negotiated was higher than its entire market cap at the time.
Investors that followed my recommendation to show up and to continue buying into the lower price were handsomely rewarded. BGC shares recently hit a new 52-week high.
You could argue that by not showing up, you miss the worst performing days. True enough, but the bias for the stock market is to rise over time. Therefore, my bias is to show up. Over most of my investing career, continually showing up has proved rewarding. What works for me should work for you too.
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