The investing mistake that has cost me the most in my life

[Antares]

The Preparing for Doomsday thread inspired this thought. But because this is the most important mistake I’ve made, and made repeatedly in my earlier years of investing, I thought I’d make it it’s own thread. Note that it’s far from the only one, just the most costly.

Many people feel troubled by the long bull market, and have the impulse to take money off the table. Age and experience have actually increased my risk tolerance. Having been through ‘87 in my late 20s, then 2000-1, and 2008, I see that I lost no money. In all cases, I closed my eyes for a few years and found I’d made a lot of money. Dips and crashes are to be expected. I don’t much enjoy them, but enduring them is the price of benefitting from money in the market. I’m now 59, 70/30, and determined not to make the mistake that has cost me the most in my investing life: taking money off the table when the market is up, losing some of the upside ride, and not knowing when to get back in. For me, the less I do, the less I mess up.

I hope that helps someone —

[jfoxcpacfp]

You are obviously the exception, not the rule. So uplifting to read this and thanks for sharing. Was your behavior a happy accident or do you have any tips that might help others?

[djohnflatfeecfp]

Antares wrote:

The Preparing for Doomsday thread inspired this thought. But because this is the most important mistake I’ve made, and made repeatedly in my earlier years of investing, I thought I’d make it it’s own thread. Note that it’s far from the only one, just the most costly.

Many people feel troubled by the long bull market, and have the impulse to take money off the table. Age and experience have actually increased my risk tolerance. Having been through ‘87 in my late 20s, then 2000-1, and 2008, I see that I lost no money. In all cases, I closed my eyes for a few years and found I’d made a lot of money. Dips and crashes are to be expected. I don’t much enjoy them, but enduring them is the price of benefitting from money in the market. I’m now 59, 70/30, and determined not to make the mistake that has cost me the most in my investing life: taking money off the table when the market is up, losing some of the upside ride, and not knowing when to get back in. For me, the less I do, the less I mess up.

I hope that helps someone —

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What a great post!  Thanks for sharing your experience.  It reminded me of something I wrote about a couple of years ago I titled - Worst...Timing...Ever. It is an analysis of someone who managed to invest at all the wrong times from the 70s forward.

[The White Coat Investor]

It's just as hard to stay the course in a bull market as in a bear.

[FIREshrink]

At age 59, presumably having "won the game", and with a 70/30 allocation and a CAPE 34... I wonder if maybe you learned the wrong lesson?

My AA is 60/40 but I've drifted to 63/37 and I am thinking, seriously, of lowering equity exposure to 50%. We're already FI and if bonds yielded anything worthwhile I would definitely do it. Seems there is greed everywhere. Well, I'm fearful.

By the way, where is Crixus? If he has stopped posing then my nervousness factor just doubled. When the Permabears give up the ghost the crash cannot be far away.

[VagabondMD]

FIREshrink wrote:

At age 59, presumably having “won the game”, and with a 70/30 allocation and a CAPE 34… I wonder if maybe you learned the wrong lesson?

My AA is 60/40 but I’ve drifted to 63/37 and I am thinking, seriously, of lowering equity exposure to 50%. We’re already FI and if bonds yielded anything worthwhile I would definitely do it. Seems there is greed everywhere. Well, I’m fearful.

By the way, where is Crixus? If he has stopped posing then my nervousness factor just doubled. When the Permabears given up the ghost the crash cannot be far away.

Click to expand...

I am with you. Who knows, if @Anteres had a higher equity exposure, he might have bailed...at precisely the wrong time. Hindsight is always 20:20. It is fun to read what people "will do in the Bear Market", but just like no one (except my brother-in-law, by his actions) rings the bell at the top, no one rings it at the bottom, either.

Pick an asset allocation that suits your risk tolerance and time horizon and stay with it, adjusting with great thought only as your risk tolerance and time horizon change, not as the market moves.

[hnnguyen3]

I've been wanting to ask about portfolio re-balancing in case of a market downturn, but your post answered it.  Thank you.  I am several decades away from retirement so will buy and walk away.

[Antares]

jfoxcpacfp wrote:

You are obviously the exception, not the rule. So uplifting to read this and thanks for sharing. Was your behavior a happy accident or do you have any tips that might help others?

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Thanks. There were two relevant behaviors here:

1. Not doing anything following a crash, which led to big gains when markets recovered. For this, I perhaps accept praise. I knew the damage was done, and I could only make it worse by selling. I was rational about that. But not about behavior #2.

2. Selling when markets were high, leading to costly problems. I became anxious about high valuations, and sure that a major crash must be coming. I would take measures to protect myself. Of course those measures made things worse. Making things worse meant missing the rest of the bull market, and paralysis with cash sitting around waiting for the moment I’d feel comfortable getting back in. That moment was hard to find, and it is excruciating to be out of a rising market, forgoing all the gains as stocks go up. Never do that! I didn’t know when to get back in; I prayed for the crash that never came; eventually rationality dictates some means of reentering the market, and there is nothing to show for the whole misadventure but anguish. What helped me eventually was only the pain of these experiences, and the eventual understanding of the consequences of my behavior. I could say a lot more, but it comes down to this: it took me years to fully accept what the market gives, and not to try to do better or avoid doing worse than the market.

Unless you are an impeccable super-rational, unemotional investor, I think it behooves each person to study his or her behavioral tendencies around investing, and to attempt to correct for them.

There is a Taoist saying that is applicable: When you do nothing, nothing will not be done.

[LizOB]

Reminds me of when you're sitting in traffic if you keep changing lanes to try to get ahead it almost never works out, you're better off just staying put and not worrying about it

[Zaphod]

LizOB wrote:

Reminds me of when you’re sitting in traffic if you keep changing lanes to try to get ahead it almost never works out, you’re better off just staying put and not worrying about it

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Ah, but Im really good at this. Almost nothing makes me more happy in a petty way than to pull up next to the jerk who has been speeding, switching and being reckless four or five lights down, or sometimes 100+miles later on the freeway. Like investing, the math just doesnt make any sense for speeding/changing too often unless its a serious road trip.