Think of something you are truly good at. One of the reasons you are good at it is because your knowledge and experience enables you to override your emotions to make decisions. 2020 uniquely illustrates multiple moments that required a steady hand at the helm to navigate turbulence.
Even before Covid-19 became evident, behind the scenes, certain equity valuations were suspect, giving pause to the value-sensitive investor. Ironically, overvaluations were then somewhat remedied following the first utterance of the word “pandemic”. This was followed shortly thereafter by the lockdown-created recession. And each of these events happened amidst societal unrest and, arguably, the most polarized election in recent times. Even the seasoned investor heard the siren’s call of temptation to reduce or eliminate stock market exposure. So what of those who surrendered to their emotions?
If they moved to cash, they have not only earned next to nothing (salt on the wound!), they also failed to participate as the stock market climbed a multi-faceted “wall of worry” back to near all-time highs!
Now, to the “teaching moments”. Pretend you bailed from the stock market, abandoning your personal investment plan, sometime this year, presumably thinking “until things get better.” From time to time I want you to ask yourself “Would I reinvest now?” One of two things are likely to happen: Either things are or at least feel better, in which case the market is likely to be more expensive than when hypothetical “you” bailed, or…things never seem “better” to you, compelling you to never return to your investment plan.
As you may have heard me say many times, making the decision to “temporarily” sell is easy compared to the often-agonizing decision to buy back in!