“Oh no … this is the big one!”

Each market downturn looks like the next Great Depression is right around the corner.

Really? Give me a break!

The media is telling you that this time is different … but I don’t buy it.

Yes, it’s the first time we’ve had inflation since 1982.

And we’ve had supply chain shortages, COVID-19 shutdowns … yadda, yadda yadda.

But folks, this ain’t my first rodeo.

I started managing money right before the October 1987 crash.

I’ve been an active investor through every bear market since then.

And let me tell you: This time is not different.

Sure, the economic events leading to this downturn are different from the past.

But the way investors react is pretty predictable.

Predictable Investors

During times of doom and gloom, investors follow the same playbook.

Most of them hide under their desks.

And then, they start behaving in all sorts of counterproductive ways. They…

  • Look to sell their stocks before the next recession.
  • Get out of the market, waiting for the next bull market.
  • Or reposition (a fancy word for selling their holdings and going to cash).

Why do they act this way?

Because on the surface, they may feel like they’re acting rationally in the face of uncertainty.

But what they’re really doing is costing themselves a boatload of future returns.

Instead of running for the hills and selling their stocks, they should be doing nothing.

And why’s that?

It all comes down to one thing…

Shifting Focus

The secret is compounding.

Bruce Flatt has been CEO of Brookfield Asset Management for the past 20 years.

When he took over, Brookfield’s market cap was only $3 billion. Today, it’s around $77 billion.

Talk about compounding!

Flatt focuses on buying great businesses being run by outstanding people. And he lets the business compound those assets.

He says the key is:

Do not get distracted by the things that happen every day.

In other words: Don’t get caught up in the daily wiggles and jiggles of the stock market.

Investors think these moves are important and something they should focus on.

That’s total hogwash.

They’re letting Mr. Market guide them.

They’re associating price with the fundamentals of the business.

They never realized that Mr. Market is there to serve you, not guide you.

The only time you should be looking at price is when it’s a bargain and you want to be a buyer.

All other times, focus on the business…

No Interruptions

If you buy a handful of businesses that should continue to move higher over the next five, 10 and 20 years, it’s pretty hard not to make money.

Once you buy these stocks, leave them alone.

Charlie Munger, Warren Buffett’s business partner, said:

The first rule of compounding is to never interrupt it unnecessarily.

Say you bought shares of companies that you knew something about in 2006.

Let’s use Amazon, Apple and Mastercard as examples.

You would’ve held them through the 2008 financial crisis, the 2011 Europe debt crisis and COVID-19.

And in those 15 years, you would have made 80X, 60X and 35X, respectively.

But if you’d interrupted the compounding process, your returns would have been much lower!

Real Talk: I know it looks scary seeing your stock portfolio go down on a weekly basis.

So, I suggest you don’t look at your brokerage statement.

You might freak out and do something stupid.

Instead, simply focus on the businesses you own.

If they’re quality businesses that are bought at attractive prices, then sit back and relax.

Over the next five to 10 years, you’re going to be a happy camper.

And if you’re looking for new buying opportunities, there’s one area Mr. Market has got all wrong.

Microcaps — companies with market caps below $500 million — are currently very underpriced.

Companies like Amazon, Berkshire Hathaway and Walmart all started out as microcaps.

Now, their market caps are worth hundreds of billions — and even trillions — of dollars.

But microcaps are not for everyone.

You need to have the right temperament to sit through downturns.

So, if you have the proper mindset, I highly suggest you check out this special presentation I put together on microcaps.

Click here to see what I’m talking about.

Charles Mizrahi

Charles Mizrahi

Founder, Alpha Investor