Punxsutawney Phil’s Guide to Investment Wisdom
If you have yet to experience the infamous Groundhog Day holiday, I would suggest you add it to your bucket list. My wife was born and raised in Punxsutawney, Pennsylvania: The Weather Capital of the World. Because of this, I have been well acclimated to the town’s claim to fame on February 2nd and have gotten the opportunity to partake in the hundred plus year tradition. This year, I attended the festivities as well as introduced some family and friends to the Groundhog Day extravaganza. To recap what this looked like: we woke up in the middle of the night to head up to Gobblers Knob, where Punxsutawney Phil would be pulled from his stump to tell the world if there would be six more weeks of winter or an early spring. From three in the morning until around eight, there were fireworks, musical performances, talent shows, you name it! This brought tens of thousands of people from across the globe. And in case you missed it, Phil predicted an early spring. We can only hope he is correct!
While you may not have experienced Groundhog Day in Punxsutawney, you’ve probably heard of the 1993 movie starring Bill Murray, whose character relives the same day on repeat. Unlike Bill who experienced the same day over and over, this isn’t the case for us. For us, each day is a new day. A new day that brings unexpected challenges and different market scenarios. We don’t know what tomorrow holds, which is why we feel it is important to spend more time in the market rather than trying to time market volatility. Yes, Bill Murray may have been able to time the market perfectly, but for the rest of us, our best road to success comes from implementing a long-term investment strategy and spending time in the market.
The adage, “it’s not about timing the market, but about time in the market,” has been proven to hold true over the years. Those who stay invested over the long run in a well-diversified portfolio will usually perform greater than those who attempt to profit from turning points in the market. Timing the market is difficult, because you must be right twice; when to buy and when to sell. Oftentimes, this leads to missed opportunities and potential losses due to volatility in the markets being inevitable. Timing the market can also involve making decisions based on emotions such as fear or greed. This type of decision-making can lead to impulsive actions that usually don’t align with a well-thought-out investment strategy. Whereas, staying invested over the long run encourages a more disciplined and rational approach. Long-term investors who stay the course can better weather the ups and downs of the market I thcycle, and historically, data shows that on average the market has provided positive returns over extended periods of time.
Trying to make short-term predictions on market movements can lead to missing out on lucrative returns. Over the 20-year span from 2002-2022, if you were invested in the S&P 500 and missed the 10 best days in the overall market, your returns would have been cut in half when compared to being invested for the entire time. Around 70% of the stock market’s 10 best days in that period also occurred during a bear market, when short-term investors were more likely to sell, and decisions were being made on negative consumer sentiment. If you took it a step further and happened to miss the market’s 30 best days over the same 20 years, your initial investment in the S&P 500 would have just barely broken even. (Visual Capitalist)
As much as we might love to live in our own “Groundhog Day” and know exactly what tomorrow holds, that is not how real life works (unless you’re Bill Murray). The market will continue to have its good days and its bad days. Punxsutawney Phil hasn’t been the best predicter of the weather over the years, so we can learn from him, and choose a long-term investment strategy to help avoid the shadows of market volatility.
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