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The current selloff is great for long-term investors. Here's why…

by , 03 May 2022
The current selloff is great for long-term investors. Here's why…
Over the last few months, I've written quite a few rather bleak articles (to say the least). I've issued warning after warning about the state of the financial markets. So, if you follow my Money Morning column regularly, you may easily believe I'm a permabear. A permabear is someone who believes markets will fall no matter what the conditions on the ground look like.

Given my very negative slant over the last 12 months, you may think I'd never even consider investing directly in the stock market. However, nothing could be further from the truth.

I firmly believe, if given the choice between buying the market at the high (just before a crash) and never buying at all, it's much better to buy.

If you look at the crash caused by the financial crisis of 2008. If you had bought into the S&P500 in 2007, just before the downturn, you would have lost over 45% of your money during the next year or so. However, if you took a long-term view, and stayed invested until today (roughly a decade and a half later) you would be up 190%. That works out to around 8% per year in USD.
Obviously, it would have been better to buy the dip. If you had bought the 2009 lows, you would now be up over 440% in just 13 years.

This is a pattern that has repeated through the decades. Buying into the market gives reasonable returns over the long-term. While buying into a
pullback gives great returns.

Important Note from Money Morning Editor in Chief: Chief Income Strategist Josh Benton says there is a certain group of overlooked stocks that thrive off extreme market conditions like the ones we're experiencing. Make no mistake - the crash in growth and tech stocks is no passing blip. A new decade of Value has already begun and the window of opportunity to capture returns of 200%, 300%... possibly more…. is closing fast.  Josh Benton says it’s a once in a generation opportunity that could transform your wealth, your lifestyle and your retirement. Learn more here.

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What I have learnt from market sell offs
Well, generally the market overreacts to economic news. Looking back to 2008. Markets were down over 45% from their peak. The US economy did fall over the same period, but only by about 2.5%.
 
Let’s look at the current conditions causing a pullback: Inflation, global geo-political tensions and rising interest rates. None of these factors are good for the economy and none are good for the stock market. However, if you take a long-term view, none of these factors will likely derail any of the longer-term global growth trends I’ve regularly written about.  

What really drives economic growth over the long-term are advances in technology. There is no indication that the pace of technological innovation will slow anytime soon. In fact, I would argue that we are seeing a golden period in technological advances.

Biotech has seen a massive boost due to the pandemic. The emergency measures taken to fight Covid19 have actually allowed many revolutionary technologies to advance faster than they normally would. For example, I am close to 100% certain we will see incredible new treatments for cancer all thanks to the offshoots of the work done on Covid-19.

Space related technology is another area seeing an uptick in progress. Elon Musk’s SpaceX is just one of many private companies that are competing in the sector. For the first time since the space shuttle in the 1980s, we are seeing real innovation happening. If you have not yet seen a SpaceX rocket land, it looks almost like a special effect. That’s usually a great test when identifying revolutionary technology:  Does the new piece of tech seem “unreal”. If it does seem unreal, it’s likely to be world changing.

For example, I can remember the first time I used the internet. Obviously looking back from where we are today it was rather primitive, but at the time it seemed like magic. You type in an address and a whole new world of information is available. I got the same feeling the first time I used a smartphone. A computer in your pocket.

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Discover how to start playing this decade's biggest megatrend.
We're living in what Josh Benton calls the "next decade of Value"... It's a once-in-a-generation shift in the market that you could ride out to boost your retirement and your lifestyle - but only if you
own "these group of stocks."

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This tech seems like magic!
If there is one area of technology that seems like magic today, it’s the advances in Artificial Intelligence. A year or so ago I wrote about GPT3, a text generating AI that could write original text based on a prompt you gave it.
Whether it was new poetry, a love letter or an advert, the program came up with amazing results. It seemed like a trick. Yet it is real.

As blown away as I was by GPT3, nothing prepared me for DALLE-2. This is an imaging AI that generates pictures based on text prompts. You could ask the AI for a picture of “a monkey doing its taxes” or “a girl climbing steps made of cookie” and, in a few seconds, the program will generate it for you. I highly recommend you search for video on DALLE-2. I don’t think words can convey how good these pictures are!

I can go on and on. Sectors that are currently experiencing incredible development are: Self-driving vehicles, robotics, virtual reality, and fusion energy. The rate of innovation is staggering.

And since the rate of technology is advancing at least as fast as normal, you can expect the rate of economic growth (over the long-term) to advance at about the same rate as normal. Therefore, as we saw in the past, if you see a market pullback, you should be buying it.




The current selloff is great for long-term investors. Here's why…
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