The intelligent investor knows and understands, unemotionally, that outside of Armageddon it is impossible to lose all your money in the stock market. There has been one 10 year period in the history of the stock market with negative returns, and zero 20 year periods with negative returns. Markets can stall for years, and provide unsatisfactory short term or intermediate returns, but catastrophic permanent losses? Minimally possible at best, unless an investor panics and sells instead of staying the course. Markets invariably deliver 7-11% annual returns over extended periods of time.
The intelligent investor also knows and understands the one asterisk to this truism is when the risk seeking, greedy investor uses borrowed money to buy investments. The true value of an investment is the average annual returns over the life of the investment, unlevered. Where investors get into trouble is when they use excessive leverage. Corporate America, and our government, have issued historical levels of debt over the past decade, as the Federal Reserve maintained a multi-year zero interest rate policy on short term interest bearing debt. American companies and our government are levered like never before. Similar circumstances arise overseas. Low quality, junk rated debt is a particularly perilous asset class at the present time. Additionally, with all the nervousness and uncertainty in the global markets, it’s a poor time to use borrowed money to buy or hold investments. A long term investment strategy won’t bankrupt an investor, but debt can and will, eventually, almost inevitably. Paying off debt, maintaining cash balances, and exercising patience after the longest bull market in US history, are all actions every intelligent investor should adopt, if heretofore unadopted.