Even Though the Market Is Moving Down, Ted Bauman Advises You to Stay In
Ted Bauman thinks that the stock market is just like a roller coaster ride, and the times that the markets are volatile are the times when everyone can see that this label really fits. The last two years give us a good example.
Mr. Bauman grew up in Maryland, but he moved to South Africa to attend the University of Cape Town, and he graduated with two postgraduate degrees. One is in economics, and the other one is in history. He lived abroad for 25 years and became an executive in the nonprofit sector. Slumdwellers International is a charity he helped found that aided more than 14 million people in 35 different countries.
All through 2017, the roller coaster was taking us up and then it stopped. The first quarter of 2018 gave us a thrilling drop to the bottom, but the roller coaster turned around and went up again for the next two quarters. In the fourth quarter, we were treated to the most exhilarating drop of the season.
Today, we are on our way up again, and we have to ask whether these ups and downs mean anything. Ted Bauman says that ups and downs are virtually meaningless unless you have a time constraint.
When investors are experiencing discomfort during turbulent times, 99 percent of the time it is because they are thinking of their investments in the short term. You can rid your life of all that emotional discomfort if you only concentrate on the long term.
If you look at a stock market chart that was started in 1872, you will see that the annualized gains are much smaller. The interesting thing is that annualized losses also look different, and they eventually disappear.
Ted Bauman looked at this data in table form. In the first year, the largest gain was 53.2 percent and the largest drawdown was 37.0 percent. In the 20th year, the largest gain was 13.2 percent and the largest drawdown was 0. This year-by-year data shows us that the stock market is just like a roller coaster.
Taking a Close Look at the Market
The table showed us that you can have a gain of 53.2 percent and a drop of 37 percent in one year. If you choose to look at the 10-year forecast instead, you will see that the largest rolling average gain was equal to 17.6 percent, and the largest drop was only 4.1 percent.
When you compare those two different spans of time, the difference in the average annual gain is between 1.6 percent and 8.4 percent over a time frame of one year rather than 6.8 percent over 10 years.
When you examine the stock market in this fashion, it is like looking at it with a magnifying glass and slowly moving away. A magnifying glass makes every little thing much larger, and when you step backwards, those huge mountains become tiny grains of sand. The ground looks flat as if it didn’t have any scary hills or mountains.
Riding the Stock Market Roller Coaster
Ted Bauman is an avid cricket fan. When he was living in South Africa, he was introduced to the sport and fell in love with it. When South Africa’s pro cricket team is playing a game, you can count on Ted Bauman to be in front of his television set.
Cricket and baseball have similarities, but one of the differences is that cricket batsmen remain at bat until they strike out. If a good player is at bat, he will score an average of 40 to 45 runs every time he is up at bat. If you average that out, you will see a variety of scores.
For example, players may score 50 to 100 runs each inning. Then, there are the times when they strike out after only two or three runs. A good cricket batsman will not worry about the times when he strikes out early; he will concentrate on how he performs over the long term.
It can be painful to see a row of low scores, but the talented ones know that it will soon end. That is how you have to think of investing. Don’t invest negative emotions in the year-to-year roller coaster ride. Make sure that you are choosing good investments, and don’t sell at the first sign of trouble. Mr. Bauman suggests that you remain in the market!
Mr. Bauman strongly advises investors not to watch the stock market’s daily news. Instead, set alarms for when your investments reach critical levels, or you can read The Bauman Letter to be aware of those crucial moments.
We can talk about cricket games, the stock market or investing, but we will think about them all in the same way.
When you are investing, you can expect the markets to go up and down and back up again. At the end of the day, things will go well if you don’t do anything rash like jump out of a moving roller coaster when it starts to go down. If you don’t do that, you will end up where you want to go.
This is good advice for what is going on right now. The past couple of days, the stock market has been going down, so it’s a good time to practice what Ted is preaching. The lower numbers do not necessarily mean that your investments are losing value.
An Introduction to the Market Correction
The drop that occurred recently has been declared to be a “market correction.” When the stock market starts to move up a lot, investors see that and want to jump in so that they can start making money too. When this happens, stock prices begin to be overvalued. They will eventually return to the prices they are truly worth, and this is the correction.
Corrections are part of normal stock market activities. Each year since World War II, there has been at least one correction. These corrections remind us that the stock market does not only move in one direction. At some point, it has to move down, and you have to be prepared for that.
Because the stock market has a habit of moving down as much as it moves up, people are deathly afraid of it. Bankrate discovered that only one in three people of the Millennial generation are actively involved in the stock market. That’s only because of fear.
Some people are afraid of a total collapse of the stock market, and others do not trust the financial advisors with their savings. Lastly, some people just don’t know how to get started. For these people, proven strategies can help them get into the market and take part in the roller coaster ride without fear.
Passive investing would appeal to the group described above. This type of investing requires you to follow Mr. Bauman’s advice and hold on to your positions while the market moves up and down. This is a long-term strategy, and Mr. Bauman says that it is good for mutual funds and index funds. These funds do not require you to check up on them on a daily basis, so they are excellent for his strategy.
Since leaving South Africa, Mr. Bauman became an educator and edits several newsletters, including The Bauman Letter, Alpha Stock Alert and Plan B Club. His advice centers around wealth preservation and strategies for low-risk investments. He is now living in Atlanta, Georgia.
Learn more on Forbes: Here’s How The Bull Market Dies