Time can be your greatest ally or foe, depending on the goal. In the investing world, even if we have reached the halfway mark in life, we still have enough time for the power of compounding to work its magic.

In the past few weeks, the markets have once again displayed their common cyclical patterns, causing many investors to question and some to act irrationally about their long-term game plan.  Let me share 5 things I’m doing to weather the storm and how I apply my “Rule of Halves”.

First, let’s lay out some facts. In the past 40 years, during my professional money management career, the equity market has experienced eight major declines of over 19% and 30+ declines of over 10%. So, this pullback of 10% on the S&P 500 and 13% on the NASDAQ from all-time highs is currently a garden variety. After each significant pullback, the market has fully recovered and more, sometimes swiftly (Covid-19), and others over a few years. In each of these painful episodes, I have regretted not being more aggressive in building up my best long-term positions.

My mistake in these situations is being preoccupied with the current problems and not fully comprehending my timeline and risk tolerance. While appreciating and learning from history is helpful, I like to think more about the future and how I will behave since that is the only thing I can control.

As a Midlife Male reader, you will likely live longer than the average American of 76.5 years, so I will give you an extra three years to 80. This means you likely have 30 years of compounding ahead. With 30 years of compounding at the long-term average market return of 9%, you can multiply your assets by 13x, but you have to be and stay in the game.

With this in mind, I’m focusing on a few actions.

  1. Clean house by selling any stock intended for a shorter-term trade but turned out to be an investment.
  2. Focus on higher quality growth stocks that typically have high price-to-earnings valuations, where I am a customer and don’t currently own the stock. I’m forcing myself to take a starter position. (COST, NFLX)
  3. Reduce the frequency with which I look at my phone and position. Allow the market to go through its gyrations without my finger on the trigger.
  4. Increase the position size in my favorite stocks that went on sale.
  5. Be mindful of my industry concentrations and consider more diversification. Most investors are too heavy in tech.

I aim to have fewer positions (15-20) of meaningful weights (in my actively managed accounts) in my favorite companies where I am a customer and love their products.

In times of market and psychological stress, I also rely on my own “rule of halves.” If I feel like doing something in the markets, I do half. This way, if I’m right, I’m glad I acted and did half. If I’m wrong, I’m glad I only did half, buy or sell. This keeps me active when others stay on the sidelines.

As Mark Twain said many years ago, “Twenty years from now, you will be more disappointed by the things you didn’t do than by the ones you did.”

Let’s not regret when opportunity knocks.

1987 Black Monday Crash (-22.6% in one day, -33.5% from peak)

1990 Recession (-19.9%)

1998 Russian Financial Crisis/LTCM (-19.3%)

2000-2002 Dot-Com Bubble Burst (-49.1%)

2007-2009 Global Financial Crisis (-56.8%)

2018 Fed Tightening Correction (-19.8%)

2020 COVID-19 Crash (-33.9%)

2022 Inflation/Rate Hike Bear Market (-25.4%)