If the markets have delivered little to nothing over the past two years or so, the first instinct for most investors (and specifically new ones) is to worry, and wonder if something is broken in the markets. But that is not true. Nothing is broken. Markets always move in cycles. If there are good days, then there will be bad days. If there are good years, then there will be bad years. And the very periods which feel most disappointing, i.e. when the returns are flat-to-negative, and when your patience is being tested and is on the brink, are exactly after which the stage is being set for the next upcycle. Whether it happens tomorrow, next week, next month or next year, no one can predict that. But eventually, the pendulum of the market will oscillate to the other side. Every bust lays the groundwork for the next recovery, just as every boom carries within itself the seeds of decline. A market that has gone sideways for 1–2 years is not a market that has stopped working. Rather, it is a market that is quietly doing the most important work: rebalancing the risk-reward equation in favour of the investor. Historically, buying after a period of stagnation or negative returns, dramatically improves the odds of strong future returns. There is data to prove it if you look for it.
You can think of a flat market as a pendulum resting near the centre, or even swinging back toward value. Howard Marks refers to patience as a “time arbitrage”. And that is what you need to show now. Patience. And the willingness to wait longer. The investors who will compound wealth meaningfully over the next decade and get rich will not be the ones who sold during these down years in frustration. They will be those who put their head down, accept these down periods, and keep investing as and when possible throughout this painful period. It is always like that.
And when you think on these lines, then a consolidating/falling market is not a disappointment but precisely the setup that long-term investors should welcome. Act accordingly, please.