One more time, with feeling: why the best investment strategy always hurts
by Scott Kyle, Chief Investment Officer at Coastwise Capital Group
Think back to the spring of 2009, when the stock market was making headlines – and not in a good way. Market swings and dramatic swoons had even the heartiest among us sick from all the turbulence. Buying stocks was pretty much the last thing on investors’ minds; and for many, selling felt like the best investment strategy.
But when it comes to investing, your gut is really dumb. In fact, the only time you should listen to your intestinal tract with regard to stocks is on “opposite day.” Simply put, your stomach gets it wrong virtually every time. Whenever it “feels” like a bad time to invest, it is likely actually a good time to put money to work. For example, imagine if you could go back to March of 2009. At the time, most investors were racing for the exits. But in retrospect (and over 6000 points for the Dow later), it turned out to be a great time to buy stocks. That is the point: it will always feel bad when the timing is right.
Furthermore, you will never call the bottom — except by sheer luck. So be prepared: if you do the smart thing and put money to work during market malaise, you may be “wrong” in the near term since the stock you purchased on Monday will likely be down on Tuesday. But how about a year or two from Tuesday? That is when you will be glad you did the opposite of what your gut was screaming at you to do.
The mirror image of this scenario is also true. When you are feeling warm and fuzzy inside as it relates to your portfolio, you should do some serious portfolio (if not soul) searching for potential risks. Chances are, your gut is playing a trick on you. The fact is, our relationship with money is largely emotional – and the same applies to our investing lives. As humans, our brains are not wired to make smart investment decisions; but if we embrace this fact, we can make it work in our favor. Learn from the times when you felt nearly sick inside as the stock market bled red day after day – and realize that those are the moments when seeds are planted for future wealth.
The information in this article is strictly for educational and illustrative purposes and is not an attempt to furnish personalized investment advice or services.
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