Have you ever hear someone say something along the lines of “XYZ investment is dead/broken” only to see that investment/strategy recover shortly after. After the terrible returns of the stock and bond markets combined this last year I have seen numerous people act as though a balanced portfolio or investing in a mix of stocks and bonds is broken – as though you would be throwing money in a fire if you ever tried that again.
This is a natural reaction to drawdowns. It is painful to lose money. However, as a long-term investor I see it quite a bit differently. Just as a portfolio of stocks can drop in value then recover later a portfolio that is a mix of stocks and bonds can drop and recover later. There is no reason to abandon an investment or strategy simply because it is down in price. It should only be abandoned if the decline in price is a symptom of a true lasting problem. It works the same in reverse too. For example, if GameStop stock rockets up in price but the company’s actual sales and profit don’t increase then it is a fickle price move. It may be a big move, but it is without good reason. Likewise a drop in value that isn’t tied to a permanent problem will likely recover. Just as GameStop stock price has recovered back towards it’s business fundamentals.
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