I recently had a conversation with someone who said that at the beginning of the pandemic he liquidated much of his investment portfolio, leaving it in cash ever since. He regrets panic-selling but feels stymied about when and how to reinvest. He said, “I lost money twice: Once from selling low and again from not participating in the past year’s bull market.”
This prompted one of my favorite questions: “What is more apt to make you lose sleep—missing opportunities or actually losing money?” His answer was blunt and quick: “Missing opportunities!”
My head was spinning from how differently he and I think. First of all, he and I have different definitions of loss. I think of loss as actually going backwards permanently, such as buying stock in a company that subsequently goes belly-up. THAT’S how I view losing money! He thinks he “lost money” by sitting on cash while the stock market skyrocketed. No, that is missed opportunity in my book.
Consider this irony: Although he loses sleep over missing opportunities and thinks he “lost money” by being out of the market, he experienced both!
I have to admit: I LOVE our investment process, because it accommodates both concerns. By being diversified amongst a wide range of solid investments, limiting exposure to each, and perpetually monitoring how those investments are likely to respond to the next few months and years of economic trends, we seldom miss opportunities nor suffer permanent losses.