The other day when I was at the dog park, I was approached by a couple who had a question about their investments. I thought I would share their question and my answer with you. Basically, they told me they are not supporters of and do not like President Trump. They felt that because of the election there would be a major downturn and a crash in the markets. As a result, immediately after last fall’s election, they liquidated their entire stock portfolio and moved into cash where they have remained. Needless to say, they now know they made a mistake and are kicking themselves over their decision. Their question to me was should they just jump back into the market or wait until a downturn.
The first thing I told them was that kicking themselves over their decision isn’t going to do them any good. As I explained to them, as investors, we cannot afford to look in the rear-view mirror; we always have to look forward. After all, that’s what the markets do and that’s what we should do as investors. Yes, we should learn from our mistakes, but we shouldn’t beat ourselves up over a bad decision.
The second thing I told them was that I have no idea if a downturn or a crash is around the corner. Market downturns and crashes are nearly impossible to predict and it’s not something investors should attempt to do. After all, to take advantage of a crash or a downturn you have to be right twice – once when you buy and once when you sell. Unfortunately, no one has been able to do that successfully. Of course people claim that they can predict markets; but unfortunately, that’s not the case.
Lastly, I told them that since the bulk of their money was going to be invested for long term, they need to get back into the market. What I suggested is that as opposed to putting everything in all at once, they should consider a dollar-cost averaging strategy. Dollar-cost averaging is a strategy where you invest a set amount of money on a regular basis no matter where the market is. The theory being that with the markets always on a rollercoaster ride, the dollar-cost averaging method would give you a lower per share price. What I recommended is that they consider dollar-cost averaging back into the market by investing their money equally and consistently over a six-month period.
As investors we are going to make mistakes. The key is not to dwell on mistakes but rather to learn from them. Too many investors focus on shoulda, woulda, coulda which accomplishes nothing other than to be more frustrated. Investors need to accept the reality that unless you’re extremely lucky you’re not going to buy when an investment is at its ultimate low or sell when it’s at its highest point. However, you don’t have to do that in order to be a successful investor. A successful investor is one who has patience and one who doesn’t let fear or greed dictate their investment decisions. In addition, a successful investor accepts the fact that not every investment turns out the way you would like. Sometimes you buy at the wrong time, or you sell at the wrong time or just invest in the wrong investment. A good investor accepts these realities, learns from them and moves on. Investors who beat themselves up for mistakes are almost always investors who are not successful.
If you would like Rick to respond to your questions, please email him at Rick@bloomassetmanagement.com.