This is how it works.

Below is a newsletter I sent to my clients on the 8th February.  If you are wondering what is going on in the markets right now, just remember, it's perfectly normal.  It's what they do.

"The stock market is a wonderfully efficient mechanism for transferring wealth from the impatient to the patient." - Warren Buffett

As I write, the S&P 500 has fallen around 7% - hardly the catastrophe that the media would have us believe.  It might be over by next Friday, it might not.  I can’t tell you when or where it will end (neither can anyone else), I just know it will end.  I know that because all set-backs to a diversified portfolio of the great companies of the world have been temporary.

If it turns into a bear market (a 20% fall), I will write again.  For now, the thing to remember is that it is at times like these that we, patient, long-term equity investors, earn our returns.  It’s the perfectly natural progression of markets, it’s how they work.


If you are still working and saving for retirement, then history tells us that (if this slide continues) there will be a buying opportunity for the long-term investor.  Picking up shares of great companies during periods of distress will help you achieve your long-term goals.

Here is an interesting bit of history.  The greatest bull market of all time ran from 1982 through to 2000.    The S&P 500 went from around 100 to around 1500.   However, there were three bear markets during that time.   None of them lasted very long.   The 1987 crash was three and a half months long.  The 1990-91 episode was three months long and in 1998 the market fell 20% in just 45 days.  You had to act quickly to take advantage.  I think there’s a chance this set-back turns into a bear market, but within a greater secular bull market.  Be ready.

I leave you with a thought from Winston Churchill (that comes from my friend Nick Murray).  Churchill famously said that democracy was the worst form of government ever devised by man – except for all the others.

You could say the same of our investment policy, which is based on the conviction that the only way to be sure of capturing the long-term permanent return of equities is to be willing to absorb all of the temporary declines.  This is, some might say, the worst investment policy ever devised by man – except for all the others.

Volatility is our friend.  It’s what makes us, the long-term equity holder, rich.

"The secret to making money in stocks is not to get scared out of them." - Peter Lynch