Resist the urge. Money is made at turns and the crowd is rarely right at critical times. Why? Because 50% to 90% of daily volume is driven by trading algorithms, not human investors with long-term time horizons.
Think of lemmings, small rodents that migrate in large groups when their population density becomes excessive. The lemming instinct is to run with the crowd, even at their own risk – until they die.
Lemmings are often compared to investors who are chasing what has worked. Think of analysts as upgrading Apple to $ 320 (lemming) from selling Apple on a regular and disciplined basis as it continued to reach new heights (not lemming).
High purse
Going against the crowd is difficult. But it is essential to create wealth. Don’t succumb to hysteria.
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The lemmings vying for outings last week may seem to know something that the average investor doesn’t know. But I would say that the blind stampede, led by computer trading programs, is closer to nature than excellent investment principles. And while sometimes painful, solid investment principles are still in vogue.
Since the market closed on February 19 at a record level of 3,386.15 for the Standard 039;Poor’s 500, the shares have sold quickly and considerably by 13%. The preparation of a sale was the theme of my column of February 23 “Here’s what smart investors do with their 401 (k) s when the stock market hits highs. “It’s time to reposition your portfolio for liquidation during periods of optimism. No lemming.)
Market corrections are normal
If you are fully invested, take a deep breath. This too should pass. If you have money on the sidelines, this can be a good time to invest. Keep in mind that the markets are correct (down 10%) every year without turning into bear markets. According to Deutsche Bank, the market corrects, on average, every 357 days. However, many investors are not used to fluctuations and panic. The corrections are as usual for experienced stock market investors but can obviously be disturbing.
According to DALBAR, the average investor was “blown away by the market turmoil in 2018”, withdrawing funds while the market ended in a loss of 9.4% against a loss of 4.4% for the S&P 500. The underperformance of the average individual investor is increasing, the markets are comparable. Stay the course. And, if possible, commit more funds to the market.
Increase your 401 (k) contributions
Increase your 401 (k) contribution during sales or add money to your brokerage account. Investing when stocks are cheaper makes more sense than buying after a recovery. Unless you think the world is coming to an end, buying dips is simply a good investment.
Remember that the markets are generally too good and too appreciated. Call it the lemming factor. It is difficult to stop the herd back and forth. Don’t be attracted.
President John F. Kennedy once observed that “when written in Chinese, the word ‘crisis’ is made up of two characters. One represents danger and the other represents opportunity. Wise words for today’s investors.
Nancy Tengler is Chief Investment Strategist at Tengler Wealth Management, ButcherJoseph Asset Management and author of the “Women’s Guide to Successful Investment”.
