Understand That Crises Are Inevitable

"History provides a crucial insight regarding market crises: They are inevitable, painful, and ultimately surmountable"~~Shelby M.C. Davis, Advisor and Founder, Davis Advisers

History has taught that investors in stocks will always encounter crises and uncertainty, yet the market has continued to grow over the long term. 

Investors in the 1970s were faced with stagflation, rising energy prices and a stock market that plummeted 44% in two years. 

Investors in the 1980s dealt with the collapse of the major Wall Street investment bank Drexel Burnham Lambert and Black Monday, when the market crashed over 22% in one day. 

In the 1990s, investors had to weather the S&L Crisis, the failure and ultimate bailout of hedge fund Long Term Capital Management and the Asian financial crises. Investors in the beginning of the 2000s experienced the bursting of the technology and telecom bubble, 9/11 and the advent of two wars. 

Today, investors are faced with the collapse of residential real estate prices, economic uncertainty and a turmoil in the financial services industry. Through all these crises, the long-term upward progress of the stock market has not been derailed.
Investors who bear in mind that the market has grown despite crises and uncertainty may be less likely to overreact when faced with these events, more likely to avoid making drastic changes to their investment plans and better positioned to benefit from the long-term growth potential of equities.

It is worth mentioning here that Shelby Cullom Davis borrowed $100,000 in 1947 and turned it into an $800 million fortune by the year 1994. 

An identical statement was made by, Christopher C. Davis, Portfolio Manager, Davis Advisers: “Despite inevitable periods of uncertainty, stocks have rewarded patient,long-term investors.” One of the most common attributes among great investors is patience.
Intelligent investors recognize that while the mood of the market may cause a stock price to fluctuate widely over the short term, over longer periods the value of the underlying business often asserts itself. When weathering a challenging period for the market, remember that throughout history, stocks have rewarded patient, long-term investors. Such perspective may help you avoid making a decision that can hamper your ability to reach your financial goals. 

And then how can we forget the famous quote of Warren Buffett, Chairman, Berkshire Hathaway: “Be fearful when others are greedy. Be greedy when others are fearful.” 
According to Mr.Buffet, building long-term wealth requires, a counter-emotional investment decisions–like buying at times of maximum pessimism or resisting the euphoria around investments
that have recently outperformed. Unfortunately, many study have shown that, investors as a group too often let emotions guide their investment decisions.
Great investors recognize that an unemotional, objective, disciplined investment approach, which often includes buying at times of maximum pessimism and exploring out-of-favor areas at times of maximum optimism, is a key to building long-term wealth.

Bottomline: Peter Lynch, the Legendary Investor and Author said, “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves.” 
Market corrections often cause investors to abandon their investment plan, moving out of stocks with the intention of moving back in when things seem better–often to disastrous results. A study which compared 15 year returns of equity investors (S&P 500® Index), who remained invested over the entire period to those who missed just the best 10, 30, 60 or 90 trading days showed the patient investor who remained invested during the entire 15 year period received the highest average annualized return of 10.5% per year. The investor who missed the best 30 trading days over this 15 year period saw his return plummet to only 2.2%. Amazingly, an investor needed only to miss the best 60 days for his return to turn negative! 
Peter Lynch is known as one of the greatest stock market investors ever. His philosophy was a simple one. He would look to the marketplace for great products or great executions, and buy those stocks. He didn’t wring his hands and study P/E ratios and look for mathematical anomalies. He is known to have said: “Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.”
Investors who understand that timing the market is a loser’s game will be less prone to reacting to short-term extremes in the market and more likely to adhere to their long-term investment plan.

Great investors throughout history have understood that building long-term wealth requires the ability to control one’s emotions and avoid self-destructive investor behavior. Though each of these great investors offers perspective on a distinct topic, the common theme is that a disciplined, patient, unemotional investment approach is required to reach your long-term financial goals.