Global Crises and Markets: Why the Long Term Pays Off

The Israel/Iran conflict represents a shocking event at a global level, which has generated strong concerns on the financial markets that have been added to the tensions on the current duties as well as the uncertainties on the trend of the global economy. But history has taught us that no one is able to stop the progress that has been achieved in recent decades through complicated situations such as the energy crisis of 73, the Gulf War of 90, the attacks on the Twin Towers in 2001, the financial crisis of 2008, the Euro crisis, the Greek crisis, Brexit, up to the pandemic of 2020 and the recent outbreak of the Russia-Ukraine conflict.

Despite this, in the last 60 years the world GDP, separated from inflation, has gone from just over 10.000 billion to almost 87.000. The resulting analysis is that the Economy, associated with progress, adapts to every type of context; and the stock markets, which represent the real economy, are the most suitable tool for generating wealth: at whatever price you ride the world markets (diversifying assets), remaining invested for the established time will invariably obtain positive results. Recent events demonstrate how risky sales caused by anxiety are. In addition to the desire to sell out of fear, there is the risk of the illusion of ability, the attempt to "play" the market in the certainty of knowing how to seize the right moment in which to buy or sell.

History teaches us that the long term pays off and the index series show with similar evidence that risking to know better is dangerous and risks significantly damaging the final result. An example: between 1993 and 2013, ten thousand dollars invested in the index would have become almost sixty thousand. If the ten best days were removed from those twenty years, the result would halve, removing the other best forty days the gain would transform into a loss of almost a thousand dollars. The reflection that follows consists in considering every sudden drop in the markets as an exceptional opportunity to achieve excellent results in the future. Volatility represents the primary architect of the success of our investments in terms of performance. By examining the major financial crises of the last 60 years, from the Vietnam War to the energy crisis of 1973, the Wall Street crash in 1987, the Gulf War (1990), the attack on the Twin Towers and the sovereign debt crisis, we can deduce that, investing in situations parallel to the current one, the results in future periods have been excellent: + 14% after twelve months; + 20% after 24 months; + 28% after 36 months; + 55% after 60 months and + 160% after 120 months. The best rule to follow? The winning strategy is the one that you had already decided to follow regardless of the market trend. Planning, if appropriate, represents the only factor capable of generating value over time in such an anomalous market context.