Don’t Just Do Something! Stand There!

By: Joe Morgan

Aug 25, 2022 | Long-Term PortfolioInvestment PhilosophyInvestment StrategyLong-Term Perspective

Prefer to listen rather than read? Pair this post with Deliberate Money Moves Podcast: Don’t Just Do Something! Stand There!

The annual update to DALBAR’s Quantitative Analysis of Investor Behavior (QAIB) study confirmed once again that when we make moves in our portfolio, we are much more likely to be losers rather than winners.

The study takes an academic approach to fund flows for individual mutual funds, which shows when people are buying stocks and when we are selling them. The consistent result for the decades the study has been updated show that we buy high and sell low.

In fact, from 1992 through 2021, the average equity investor earned 7% per year while the stock market was up nearly 11% per year. This includes, of course, all the crashes etched in investors’ minds.

How can this be?

Simple. When markets fall, instead of looking at stocks as being “on sale,” we view them as risky. When they rise, instead of viewing the lofty levels as risky, we are impressed with how much money we are making.

Even if we are not inclined to think this way, the media pushes this toxic message with extreme aggression because the story taps into our emotions and, in short, gains eyeballs.

Instead, it is much better to put a long-term investment plan in place, codify it with a written Investment Policy Statement (that will temper your tendency to shift gears at the wrong time), and only make portfolio adjustments that are designed to add value over decades, not months.

So, what do you think? Do you know how your portfolio performed last week? Does that knowledge really add any value to your investment process? Do you have confidence in how your portfolio will perform over the next 20 years? Does that knowledge add value?
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