5 Investing Lessons from the Past 90 Years
"Wisdom is the daughter of experience." - LEONARDO DA VINCI, Thoughts on Art and Life
As one of only a few investment companies operating for more than 90 years, Adams Funds has a unique perspective on what it takes to succeed in the markets over the very long run. Here are a few things we’ve learned through the years:
Lesson #1: There’s never a perfect time to start investing…so you might as well start now.
When the Adams Diversified Equity Fund was launched on the New York Stock Exchange on October 24, 1929, the bull market of the Roaring ’20s had already peaked and stocks were entering their worst downturn in history, although investors didn’t realize it at the time. Clearly, this was one of the worst environments to have started investing. Adams is one of less than a dozen funds in operation today to survive the Great Depression.
While your initial inclination may be to head for the exits in a scary market, history shows this can actually be a risky move. It is impossible to perfectly time the markets. A short-term decision to get out of the market may end up costing more than you realize. Deciding when to get back in is always difficult.
Lesson #2: Time heals all wounds…but only if you stay invested in the market.
Since our launch in 1929, Adams Funds has managed through 16 bear markets. The good news is, bear markets tend to last only about half as long as bull markets. Moreover, it typically takes less than two years for stocks to fully recoup their bear market losses, according to Standard & Poor’s (S&P).
The challenge is that most of the recovery takes place in the very early stages of a post-bear market rally. In other words, if you choose to sit on the sidelines during a bear market, there is a good chance you will miss out on the most important part of the rebound. In fact, stocks have historically gained 38% in the first 12 months of new bull markets, versus 12% in the second year and 3% in the third year, according to S&P.
Lesson #3: When others are selling, you should consider buying.
The best investors are able to take emotion out of investing. This can mean stepping in to buy stocks when sentiment is at its worst, when it feels as though the market will never stop going down.
The first test of Adams’ fortitude came early on. Just days after we started in October 1929, the stock market crashed. In hindsight this event proved to be a great opportunity to buy stocks, but only if you had 1) cash to invest and 2) a long-term investment horizon. We were fortunate to have had both.
During periods of increased volatility, we have learned that our success has been linked to remaining focused on company fundamentals and ignoring market noise. For example, buying early (and on the way down) is not easy. In fact, behavioral finance research has shown that investors feel twice as bad about a drop in stock prices as they do about an equal rise in stock prices.
Lesson #4: “The real mistake is the one from which you learn nothing.” — John Powell
It’s safe to say that in our 90 years we have made our share of mistakes. Sometimes we have held a stock too long, sold it too soon, or decided not to buy it at all. This contributed in some years to performance that was not what we had hoped.
An important part of our investment process is analyzing what we’ve done well and what we haven’t. We believe that learning from this analysis has allowed us to make thoughtful, incremental changes to our investment process and has made us better investors.
Our investment process puts a premium on how much risk we want to take with each position we add to our Fund, while managing the portfolio on both a stock and sector level. We believe that careful attention to risk management has been important to our long-term success.
Lesson #5: Stick to the basics — buy good companies doing good things at good prices.
Adams has managed money in 10 different decades, through six wars, 14 recessions, and under 15 U.S. Presidents, who were almost evenly split between 8 Republicans and 7 Democrats. Throughout this time, one thing that stands out is that money can be made in virtually every type of environment, regardless of how the economy or country is doing, or who’s running it.
Ultimately, when you buy stocks, you are investing in individual companies. And well-run, long-term minded businesses can generate profits against all sorts of economic or geopolitical backdrops.
The trick is knowing how to spot these high-quality companies, which is something that only comes with experience – many decades of it, to be exact.