We suppose it is understandable, but we are hearing lots of friends and acquaintances telling us they have pulled all their investments out of the market and gone to cash during this recent correction.
Typical are comments such as "I rode it down during 2008-2009, and I'm just not going through that again."
We remember the same level of skittishness among investors after the dot-com crash of 2000-2002 -- even after the recovery of 2003, investors were adamant when they said "I'm not going through that again."
While understandable, however, such sentiments are usually very harmful to long-term success. The only alternative to "riding it down" is jumping off and then knowing the right time to jump on again. As study after study demonstrates year-in and year-out, investors (and their advisors!) not only do not improve their returns that way, but rather destroy them.
As we wrote in a post at the very depths of the last market bottom entitled "Don't get off the train," trying to time markets is a lot like trying to time trains. If you make a mistake, you can get flattened.
As we always hasten to point out, our position of not trying to time market cycles does not mean that we embrace a pollyanna-ish "buy-and-hold at all costs" philosophy. On the contrary, we believe investors should be intently aware of what is going on in the businesses to which they give capital, and should not hesitate to pull that capital when there is evidence that something significant has changed at the business itself, whether with the leadership of the company or its growth prospects.
However, we don't usually hear investors saying "I'm pulling my money out of the market because the businesses I've given capital to are doing so poorly!" It's always "the market" swings that they are trying to time, and history has shown that the belief that one can do so is a delusion, but a "persistent delusion" that refuses to die (the term "persistent delusion," in fact, comes from a lecture on that very subject given by a Professor Henry Dunn of Harvard's Business School in 1939).
We don't suggest that investors switch from trying to time markets to trying to time trains. In fact, we would suggest that both are equally dangerous, and that the sooner this message is understood, the better.
Subscribe (no cost) to receive new posts from the Taylor Frigon Advisor via email -- click here.
For later posts on this same subject, see also:
Typical are comments such as "I rode it down during 2008-2009, and I'm just not going through that again."
We remember the same level of skittishness among investors after the dot-com crash of 2000-2002 -- even after the recovery of 2003, investors were adamant when they said "I'm not going through that again."
While understandable, however, such sentiments are usually very harmful to long-term success. The only alternative to "riding it down" is jumping off and then knowing the right time to jump on again. As study after study demonstrates year-in and year-out, investors (and their advisors!) not only do not improve their returns that way, but rather destroy them.
As we wrote in a post at the very depths of the last market bottom entitled "Don't get off the train," trying to time markets is a lot like trying to time trains. If you make a mistake, you can get flattened.
As we always hasten to point out, our position of not trying to time market cycles does not mean that we embrace a pollyanna-ish "buy-and-hold at all costs" philosophy. On the contrary, we believe investors should be intently aware of what is going on in the businesses to which they give capital, and should not hesitate to pull that capital when there is evidence that something significant has changed at the business itself, whether with the leadership of the company or its growth prospects.
However, we don't usually hear investors saying "I'm pulling my money out of the market because the businesses I've given capital to are doing so poorly!" It's always "the market" swings that they are trying to time, and history has shown that the belief that one can do so is a delusion, but a "persistent delusion" that refuses to die (the term "persistent delusion," in fact, comes from a lecture on that very subject given by a Professor Henry Dunn of Harvard's Business School in 1939).
We don't suggest that investors switch from trying to time markets to trying to time trains. In fact, we would suggest that both are equally dangerous, and that the sooner this message is understood, the better.
Subscribe (no cost) to receive new posts from the Taylor Frigon Advisor via email -- click here.
For later posts on this same subject, see also:
- "Be centered, be still -- 2011" 03/17/2011.