Financial Observations from 6,225 feet
Stock market investors can learn a great deal from skiers and riders. A ski season can be thought of as a mini investment cycle. For example, the drought over the previous three winters was like a bear market on Wall Street. Our community was in the doldrums. Tourist dollars were down and the ski shops couldn’t give away their inventories. The same happens on Wall Street when stock prices are down. The steak houses of Manhattan are empty at lunch and homes in The Hamptons go on the market. This year is the polar opposite. The current ski season we are all enjoying is like a bull market!
So what can a snowboarder teach an experienced investor? Plenty!
For the past three years, the high pressure that sat on top of Northern California and the associated drought was miserable for our local ski community and the entire state of California. But just because those winters were plagued with blue skies and icy runs, we skiers didn’t give up. We didn’t throw all our gear on Craig’s List and take up badminton. We kept our boards tuned, our legs in shape, and our attitudes positive. And why? Because we knew that there will always be great powder days during even the driest of winters and we were NOT going to miss them when they arrived!
The same held true last month. After a great beginning to the 2015-16 season, February was dry. As I recall, this one dry month in the middle of a big winter scenario is very similar to the legendary winter of 2010-11. When the high pressure wielded its ugly head last month, we didn’t toss our skis in the attic and pull out our golf clubs. We kept the faith and March is rewarding us for it.
So what does all this mean for investors? Investors as a whole are an emotional bunch. When things are good, they are all in. When things go bad, their instinct is to sell everything and hide under their beds. Investors need to take a lesson from the skier and rider community. Looking at a 10 year chart of the S & P 500 Index, the winter of 2008-09 was a major drought for stock performance. The low point was February 2009. Say you invested $100 in the S&P 500 on April 1, 2006 and sold everything on February 1, 2009, you would have lost of 40% of your money. Said another way, your $100 would now be $60. However, if you held tight and looked forward toward that next big winter storm, your paper losses would have completely reversed by February of 2011. And if you kept the faith until now, you would have made over 50% on your money! Your $100 would be worth around $150 today. So what can the wise young snowboarder teach the experienced stock market investor? When the high pressure builds, don’t sell everything and run. Stay positive. Keep invested. Remember your long term goals and always be ready for that next magical powder day!
Published in the Squaw Valley Times on March 30, 2016