{"id":897,"date":"2020-04-05T06:25:29","date_gmt":"2020-04-05T06:25:29","guid":{"rendered":"http:\/\/www.assetmultiplier.co.in\/blog\/?p=897"},"modified":"2020-04-05T06:25:29","modified_gmt":"2020-04-05T06:25:29","slug":"punched-in-the-face","status":"publish","type":"post","link":"https:\/\/www.assetmultiplier.co.in\/blog\/2020\/04\/05\/punched-in-the-face\/","title":{"rendered":"Punched in the face"},"content":{"rendered":"

Robert P. Seawright writes on his blog that investors have to face fear every day, more so on some days than others. To\u00a0quote Jason Zweig<\/a>\u00a0paraphrasing Mike Tyson, \u201cinvestors always have a plan until the market\u00a0punches them in the face<\/a>.\u201d Every investor got punched in the face during 1Q 2020. Over and over. What\u2019s an investor to do? The obvious temptation is to sell and maybe hide, but betting against the market is a dangerous business. Peter Lynch<\/a>\u00a0famously said that more money has been lost trying to avoid bad markets than in the bad markets themselves.<\/p>\n

We humans don\u2019t handle the stress well. As Laurence Gonzales explained in\u00a0Deep Survival<\/a>, \u201cit\u2019s easy to demonstrate that many people (estimates run as high as 90 per cent), when put under stress, are unable to think clearly or solve simple problems. They get rattled. They panic. They freeze.\u201d<\/p>\n

Our quite natural reaction to market volatility, to fear, is to bail.\u00a0Trying to time the market in that way comes with a crazy-high\u00a0degree of difficulty<\/a>. Market-timing successfully means making many immensely difficult and complicated decisions and being consistently right. There is no reason to expect anyone to be able consistently to navigate difficult markets without losses.<\/p>\n

On the other hand, staying in the market has significant advantages. Studies concluded<\/a> that an average of just three days per year generated 95 per cent of all the market gains.\u00a0Long-term returns\u00a0accrue in bunches<\/a>, and, in the markets as in the lottery,\u00a0you\u2019ve got to be in it to win it<\/a>\u00a0(although the market offers an\u00a0exponentially greater<\/a>\u00a0chance of success). Moreover,\u00a0the majority of the market\u2019s best days<\/a>\u00a0occur within two weeks of the worst days (as we\u2019ve seen recently), meaning that if you could somehow avoid the worst days, you would almost surely miss a lot of best days. It generally pays to stay invested.<\/p>\n

Trying to \u201cgo to cash\u201d at opportune times and, equally importantly, buying back in at the right time, is a loser\u2019s game. Market timing strategies are\u00a0frequently tried<\/a>,\u00a0rarely<\/a>,\u00a0if ever<\/a>,\u00a0successfully<\/a>. Stocks are worth their volatility, the necessary price you pay for the much higher expected returns of stocks as compared with other investment choices. Accordingly, the longer the time frame we use for reference, the more powerful stocks become.<\/p>\n

That\u2019s why truly long-term investors shouldn\u2019t worry about market volatility, which raises what is likely the crucial question: Are you a long-term investor? Those who recognize that fear will get the better of them might consider a portfolio mechanism like a pressure relief valve<\/a>\u00a0to try to help manage their fears. A decent portfolio that you can stick with is far better than a perfect portfolio you can\u2019t. [Quick Check: How often did you check your portfolio last week? If your answer is something like, \u201cA lot,\u201d Seawright may well be talking about you]<\/p>\n

Seawright concludes that despite the current turmoil, the difficulties of which should not be underestimated, the probabilities still favour investment. By a lot. Our brains all echo with fearful thoughts, whispers, and imprecations. For most of us, most of the time, we\u2019d do well to ignore them about our investment choices.<\/p>\n","protected":false},"excerpt":{"rendered":"

Robert P. Seawright writes on his blog that investors have to face fear every day, more so on some days than others. To\u00a0quote Jason Zweig\u00a0paraphrasing Mike Tyson, \u201cinvestors always have a plan until the market\u00a0punches them in the face.\u201d Every investor got punched in the face during 1Q 2020. Over and over. What\u2019s an investor […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[74],"tags":[],"_links":{"self":[{"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts\/897"}],"collection":[{"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/comments?post=897"}],"version-history":[{"count":1,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts\/897\/revisions"}],"predecessor-version":[{"id":898,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts\/897\/revisions\/898"}],"wp:attachment":[{"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/media?parent=897"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/categories?post=897"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/tags?post=897"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}