Above is the Dow Jones Industrial Average for March, through the 27th, 2020. While it should be clear to any casual market observer where a trader should have bought and sold in order to maximize returns, I used advanced computer graphics to place a circle around each inflection point. See how easy it is!
I mean, we can all predict the future, right? Then there's also the whole idea of managing not only to correctly identify the inflection points, but also remembering to buy low & sell high, rather than the other way around. Put those two things together, and it's not only, "not easy," it's extremely difficult. Why? To a large extent, because we're humans.
You may have seen the chart above before. It's been circulating for at least a decade. And yes, I shared it as well, despite an obvious spelling error, because it's pretty good. Investor psychology has been studied for ages, and its effect on behavior is well known, and yet, we continue to do the wrong thing, at exactly the wrong time. No matter how many times we hear phrases like, "It's not market timing, it's time in the market," many of us still get it wrong.
Why?
The lure of the "dark side" of market timing is strong. Whether you are reading the Bible, watching Star Wars, a fan of mythology, or whatever, you know how the main characters are always tempted, and the reason why those stories resonate so well with humanity is that we've all experienced it. Just as Luke needed to wear the helmet with the blast shield down in order to feel the Force, investors often need to tune out the emotional noise in order to avoid making costly mistakes.
Why have I spent the last several paragraphs making clumsy analogies and why did I show those goofy graphs above? And why do I sound like a broken record in my recent blog posts? Because I need more than a hand worth of fingers to count the number of friends who've contacted me since the COVID-19 crisis began asking me whether this is the time for them to go, "all cash." It's also important to note that the majority of the people I've been speaking with have been, prior to this point, full throated supporters of buy and hold, long term investing strategies, and are decades away from what is normally considered retirement age. This is how powerful the siren song of market timing is during times of stress.
All this is not to imply that one should simply dump all their money into the market and ignore it. Risk tolerances change with life events, tax laws are updated, opportunities present themselves, etc. But in general, long term decisions should not be taken during times of high emotional stress, and I would be hard pressed to think of a more stressful time than now.
Thankfully, many well known folks with followings much larger than mine have been writing about this subject, and offering advice. Below are several of the best that I've seen: https://humbledollar.com/2020/03/27-things-to-do-now/
https://www.wsj.com/articles/the-panic-of-2020-oh-i-made-a-ton-of-moneyand-so-did-you-11584716442 (behind the pay wall, it's true)
Sadly, we are still early in the pandemic process, and therefore, the economic impact of this coronavirus is still unknown, so my guess is this will be far from my last post on the subject, but I'll close with one piece of advice: focus on the things you can influence (hint: the market is not one of them), like your health and the health of your families, not the things you have no control over.