Lessons from the world’s most unlucky investor

There are two Warren Buffett quotes you should remember during times of stock market volatility:

1. “Your time horizon is your greatest asset—commit for the long haul, and the market will reward you.”
2. “Our favourite holding period is forever."

Meet Bob, the world’s most unlucky investor

Bob is an American investor who only invested at the worst possible times between 1972 to 2013.

• Bob began his career in 1970 at age 22.
• After saving for nearly three years, he decided to invest $6,000 into the S&P 500 in December 1972.
• One month later, global stock markets crashed. During the period of 1973-1974, the S&P 500 fell by 48%.
• Bob was dejected and decided he would never invest again, although he doesn’t pull out his initial investment.
• After 15 years, the markets recover and go on a long bull run. Overcoming his fears, Bob decides to invest $46,000 into the S&P 500 again on August 1987.
• Boom… In October, global stock markets crash by 34% in the event known as Black Monday.
• Again, Bob decides to swear off investing for good, but doesn’t contact his broker to pull out his investments.
• But in 1999, Bob felt the itch once more. Since 1995, stock markets had been growing exponentially thanks to the rise of dot-com companies. Bob decides to make a $68,000 investment in the S&P 500 on December 1999.
• The dot-com bubble bursts the following year. By the end of the stock market downturn of 2002, global stocks had lost $5 trillion in market capitalization since its peak.
• Bob’s $68,000 investment loses 49% of its value. This time he is sure he is never going to invest again.
• But in October 2007, at the age of 59, and with retirement looming, Bob is convinced by a friend to go
  into the S&P 500 one last time. He puts $64,000 in.
• The market of course crashes by 52% soon after in the Great Recession.
• Bob subsequently retires in 2013 at the age of 65 and pulls out  all of his money from the market.

What happened to Bob?

Between 1972 to 2007, Bob had put in a total of $184,000 into the S&P 500, always at the worst possible times.

However, by 2013, the value of Bob’s total investments had climbed to $1.1 million – more than five times what he had put in.

According to calculations by author Ben Carlson, a wealth manager who created the story of Bob to share the importance of having a long-term investing horizon, Bob would have made over $2.3 million by the time he retired if he had done dollar-cost averaging instead.

(For Bob’s case, that would mean putting in about $4,380 every year from 1972 to 2013 into the S&P 500, instead of four lump sums.)

Investing is for the long-term

One of the most critical lessons from Bob's story is the importance of patience. Markets historically recover over time. As investors, we must be prepared to wait a long time before our investments pay off.

As Warren Buffett once said: “If you don't feel comfortable owning something for 10 years, then don't own it for 10 minutes.”

Diversification is crucial

The S&P 500 is a stock market index tracking the stock performance of 500 leading companies, across many different industries, listed on stock exchanges in the United States.

Diversification helps cushion the impact of a downturn, providing a more stable overall portfolio. That’s why whether you invest by yourself or through professionally managed funds, ensure that the portfolio does not cover one type of industry.

Dollar-cost averaging vs lump sum investing

For the astute investor, a lump sum investing strategy means that he or she can capitalise on market dips to invest opportunistically. In Bob’s case, dollar-cost averaging may make more sense.

Depending on your financial savviness, opt for one or the other when it comes to investing.

Read more here: Dollar cost averaging vs lump sum investing- what works best for an ILP

Be emotionally resilient

The story of Bob, the world’s most unlucky investor, is a compelling reminder that successful investing requires patience and emotional resilience.

Despite facing significant challenges and poor timing, Bob's long-term approach, commitment to diversification, and disciplined investing (whether intended or not) ultimately led to financial stability.

His story serves as an enduring lesson for investors, highlighting the importance of a methodical, patient, and resilient approach to navigating the unpredictable world of investing.

You can speak to a financial adviser about investing for the long-term or view all our wealth products here.