Surviving a Down Market: One Mistake You Can’t Afford
There are many mistakes we can make when investing, the most significant of which is sitting out of the market. Most of the others lead us to the conclusion that we should sell our portfolios and "wait for a better time to invest."
I frequently speak with people who sold out of the market in 2009 (when the S&P 500 was around 1000 compared to today’s level of about 2700), and I wonder what drove them to make such a destructive decision for their financial lives.
I believe I’ve figured it out, and honestly, it wasn’t that difficult. Talk to anyone who is sitting in cash, and you’ll find they are well-versed in everything the financial media has said in the past week.
The financial media exists to make money, and they achieve that by attracting and retaining viewers. If they can get you to watch, they can charge more for advertising and become more profitable.
That’s it. That’s the game.
Now, what do you think attracts more viewers: telling us everything is fine and that the markets will weather whatever challenges are present, or telling us that the markets are on the brink of total destruction because... blah, blah, blah?
Of course, negative news sells, tapping into the part of our humanity that pays more attention to danger than to joy.
Getting sucked into the 24-hour market news cycle is one of the worst things you can do for your financial life because the "news" they present has always been skewed toward the negative.
To understand this better, take a look at the latest Optimistic Investor, where I calculate the return of the "Last Dumb Buyer"—the person who bought stocks on the last day before the 2008 market crash. Care to guess her return as of January 2, 2019?
It was nearly 100%!