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Good article on how easy it is to buy and hold in bull market, and how difficult it is to stay that way in bear market. We are all smart and know what to do. During a bear market emotions and fear can overrule logic. We are emotional - as evidenced by how easily some of us take offense on this board when challenged. A bear market is a test of how we deal with our emotions, not how smart we are.
I am concerned about a younger generation that has not been through a bear market. They are vocal on this forum and are sometimes at odds with some older FI docs. It is easy to post about financial smarts, aggressive allocations, leverage, and long-time horizon investing now. It is probably more important to save more, spend less, and avoid excess market risk.
www.wsj.com/articles/everyones-a-buy-and-hold-investor-now-but-can-you-stay-that-way-1502071861
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The trap snares them in several ways. Some who now think of themselves as buy-and-hold investors will be quick to throw in the towel at the first sign the market might be entering a correction. These investors then tend to sit on the sidelines too long and don’t reinvest until prices are relatively high again.
Others, perhaps most, wait until it’s clear that a bear market is well under way before giving up on buying and holding and becoming a market timer.
Regardless, one consequence is that market timing becomes progressively more popular the further the market falls. That is because almost all attempts at market timing during bear markets will improve performance compared with buying and holding, since any retreat to cash—even if chosen randomly—will tend to do better than remaining fully invested. Thus, as the bear market leads to bigger and bigger losses, and a bottom nears, erstwhile believers in buying and holding start genuflecting at the altar of market timing.
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But investors are emotional beings rather than statistically motivated automatons. And the recent past plays a huge role in their attitudes. At the bottom of bear markets, when by definition doom and gloom is the most widespread, it takes rare courage and discipline to remain a believer in buying and holding for the long term.
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I am concerned about a younger generation that has not been through a bear market. They are vocal on this forum and are sometimes at odds with some older FI docs. It is easy to post about financial smarts, aggressive allocations, leverage, and long-time horizon investing now. It is probably more important to save more, spend less, and avoid excess market risk.
www.wsj.com/articles/everyones-a-buy-and-hold-investor-now-but-can-you-stay-that-way-1502071861
excerpt--------------->
The trap snares them in several ways. Some who now think of themselves as buy-and-hold investors will be quick to throw in the towel at the first sign the market might be entering a correction. These investors then tend to sit on the sidelines too long and don’t reinvest until prices are relatively high again.
Others, perhaps most, wait until it’s clear that a bear market is well under way before giving up on buying and holding and becoming a market timer.
Regardless, one consequence is that market timing becomes progressively more popular the further the market falls. That is because almost all attempts at market timing during bear markets will improve performance compared with buying and holding, since any retreat to cash—even if chosen randomly—will tend to do better than remaining fully invested. Thus, as the bear market leads to bigger and bigger losses, and a bottom nears, erstwhile believers in buying and holding start genuflecting at the altar of market timing.
....
But investors are emotional beings rather than statistically motivated automatons. And the recent past plays a huge role in their attitudes. At the bottom of bear markets, when by definition doom and gloom is the most widespread, it takes rare courage and discipline to remain a believer in buying and holding for the long term.
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