Better to be too early than too late

Stocks went down again in September, this time dropping below the June lows. Year to date, the S&P 500 index is down by about -24%. It is a veritable bear market indeed.

In response to the S&P 500 touching new lows, I invested more of my dry powder cash at bargain prices. As of today, 40% of my dry powder has been committed to the stock market since the beginning of the year.

I have written extensively about my rationale for buying stocks when the market outlook is bleak. For instance, see here and here.

Last week I came across a piece from Seth Klarman on the 2008-09 financial crisis (courtesy of the FinTwit community): The Forgotten Lessons of 2008. One of his twenty lessons from the GFC debacle caught my attention. He wrote [empahsis added]:

You must buy on the way down. There is far more volume on the way down than on the way back up, and far less competition among the buyers. It is almost always better to be too early than too late, but you must be prepared for price markdowns on what you buy.

This lesson is also relevant today. As stocks have relentlessly gone down this year, long-term minded investors must continue investing. And at the same time, we also expect our purchases to show early losses.

Continuing my buying spree, I made four new purchases in September: Brookfield Asset Management, Berkshire Hathaway, Alphabet, Microsoft. These four are strong well-run businesses. They are not new to readers of this blog. I’ve written about them multiple times over the years.

Just like Klarman pointed out, as I invest in a declining market, my near-term results are not great. My cumulative returns today from this year’s dry powder purchases is negative 8.1%. Clearly, I didn’t catch the bottom of this market. Nor do I expect myself to.

In my August blog post, I shared a table with all my dry powder buys to date. Here’s the same table with updated share prices and this month’s new market buys.

To put this in context, during the bear market of 2020, I was able to deploy up to 70% of my dry powder cash—majority of which was deployed before the S&P 500 hit the bottom on March 23, 2020. On that day, my purchases were down by about 20%. Today, they are down by 8%. I was too early then, and I may be too early today. Nevertheless, I keep investing.