Just Stick Your Head In the Sand
One of my clients reached out with concern yesterday. He recently saw that one of the most famous investors in the world shorted the stock market. That means he's betting that the stock market will crash. If the market goes down, he wins. If the market goes up, he loses. It's also worth noting that he's reportedly put 90%+ of his portfolio in this position. In other words, a very prominent investing figure strongly believes the market is going down....and he's putting his money where his mouth is.
My friend's immediate response was that he, too, should consider selling his investments. This reaction is a very human way to approach investing. This is also where we get ourselves into trouble. The problem with timing the market is we have to be right twice. We have to know when to sell, then when to re-buy. It sounds easy. Sell it now when the market is high, and buy later when it is low. In practice, however, it's anything but easy. Let's say he was to sell now. How do we know the market won't go up another 10%, 20%, or 50% before it falls? Every time it goes up, he'll be more emboldened to stay out until it finally crashes, affirming his original decision to sell. Then once it does eventually crash, he'll need to know when to buy again. It's a scary place at the bottom. It's full of fear, uncertainty, and imbalance. More times than not, people who try this approach re-buy way too late, after the market has significantly recovered. The data shows people who try to play this game significantly underperform the market.
What's the alternative? Just stick your head in the sand. The wise, patient, and effective choice is to simply ignore the noise around us. Do nothing. Don't worry about it. Don't make any decisions. Don't let fear get the best of you. Just stick to the plan and trust the process.
Check out the chart below. It shows the stock market's value, over time, since 1/1/2000. Since then, the stock market has crashed four times:
2001: Down 46%
2009: Down 54%
2020: Down 32% (in 5 weeks!)
2022: Down 20%
Yet, through all this mess, the person who just stuck their head in the sand would have approximately 3.2x as much as they started with (more than tripled your money!!!). This doesn’t even include all the dividends you would have received along the way (which averaged 1.9%/year during that stretch). You wouldn't have lost a wink of sleep, spent any time dealing with your investments, or worried in any shape or form. This is the way investing should be. Head in the sand. Trust the process. Just live a meaningful life!
* For whatever it’s worth, this is exactly what I’ve done in my own life. I started long-term investing in late 2000, and have never once sold one penny of one investment. It’s an extremely simple and tremendously effective way to handle our investing. And no, I didn’t lose one wink of sleep when I lost 1/3 of my life’s savings in a five-week stretch in 2020 or 1/5 of it in 2022. We take the bad with the good, period.