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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
This book, from New York Times best-selling author Peter Mallouk, will help you avoid the mistakes that stand in the way of investment success!
A reliable resource for investors who want to make more informed choices, this book steers readers away from past investment errors and guides them in the right direction. The Five Mistakes Every Investor Makes and How to Avoid Them, Second Edition, focuses on what investors do wrong, so you can avoid these common errors and set yourself on the right path to success. In this comprehensive reference, you'll learn to navigate the ever-changing variables and market dilemmas that can make investing a risky and daunting endeavor. In this Second Edition, Peter Mallouk shares new investment techniques, an expanded discussion of the importance of disciplined investment management, and updated advice on avoiding common pitfalls.
In this updated Second Edition, you'll find a workable, sensible investment framework that shows you how to refrain from fighting the market, misunderstanding performance, and letting your biases and emotions get in the way of investing success.
- Offers updated discussion and investment techniques to improve your performance in today's market conditions
- Details the major mistakes made by professional and everyday investors, including fighting the market, overactive trading, and not having an endgame
- Highlights the strategies and mindset necessary for navigating ever-changing variables and market dilemmas
- Includes useful investment techniques and discusses the importance of discipline in investment management
The Five Mistakes Every Investor Makes and How to Avoid Them, Second Edition leads you in the right investing direction and provides a roadmap that you can follow for a lifetime.
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Seitenzahl: 277
Veröffentlichungsjahr: 2021
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Table of Contents
Cover
Title Page
Copyright
Dedication
Preface
Acknowledgments
Notes
About the Author
Legal Disclosure
INTRODUCTION: The Market Wants to Be Your Friend
Note
MISTAKE #1: Market Timing
The Idiots
Why Is It So Hard to Beat the Market?
Efficient Markets
The Evidence (Research and Stuff)
The Media Get It Wrong, Over and Over Again
Economists Get It Wrong, Over and Over Again
Investment Managers Get It Wrong, Over and Over Again
Newsletters Get It Wrong, Over and Over Again
Your Buddy
Strategies That Don't Sound Like Market Timing but Are Market Timing—Oh, and They Don't Work Either
Asset-Class Rotation
Tactical Asset Allocation
Style Rotation
Sector Rotation
What Smart Investors Have to Say on Market Timing
Knowing All This, Why Would Anyone Market Time?
Corrections
Bear Markets: An Overview
Bear Markets Happen for Different Reasons, but the Outcome Is Always the Same
Bear Markets Are Not Predictable
When Bear Markets “Turn,” They Make People on the Sidelines Look Silly
The Market Is Volatile—Get Used to It
You Can't Wait for Consumers to Feel Good
Learning to Accept the Bear Markets
Miscalculating the Risk of Market Timing
But What If I Am Perfect?
Lump-Sum Investing versus Dollar-Cost Averaging
Learning to Fly
Avoiding Mistake #1—Market Timing
Notes
MISTAKE #2: Active Trading
The History of Active Trading
Active Investment Managers Lose to Indexing
Newsletters Lose to Indexing
Active Mutual Funds Lose to Indexing
Survivor Bias (a.k.a. Mutual Fund Performance Is Even Worse Than the Data Suggests)
What About the Winners, Huh? What About the Winners?!
Hedge Funds Lose to Indexing
Endowments—Misperception of Performance
Venture Capital (Sounds Sexy but Usually a Dog)
The Taxman Cometh (a.k.a. Dear Goodness, It Gets Worse)
Portfolio Activity Hurts Performance
But Doesn't Active Management Work in a Down Market?
Why Indexes Win
But Indexing Results in Average Returns
S&P 500, Here I Come!
Avoiding Mistake #2—Active Trading
Notes
MISTAKE #3: Misunderstanding Performance and Financial Information
Misunderstanding #1—Judging Performance in a Vacuum
Misunderstanding #2—Believing the Financial Media Exists to Help You Make Smart Decisions (a.k.a. the Media Is Killing You)
Misunderstanding #3—Believing That the Market Cares About Today
Misunderstanding #4—Believing an All-Time High Means the Market is Due for a Pullback
Misunderstanding #5—Believing Correlation Equals Causation
October Is The Worst Month to Invest
Sell in May and Go Away
Misunderstanding #6—Believing Financial News Is Actionable
Misunderstanding #7—Believing Republicans Are Better for the Market Than Democrats
Misunderstanding #8—Overestimating the Impact of a Manager
Misunderstanding #9—Believing Market Drops Are the Time to Get Defensive
Avoiding Mistake #3—Misunderstanding Performance and Financial Information
Notes
MISTAKE #4: Letting Yourself Get in the Way
Fear, Greed, and Herding
The Overconfidence Effect
Confirmation Bias
Anchoring
Loss Aversion
Mental Accounting
Recency Bias
Negativity Bias
The Gambler
Avoiding Mistake #4—Letting Yourself Get in the Way
Notes
MISTAKE #5: Working with the Wrong Advisor
Most Advisors Will Do Far More Harm Than Good
Advisor Selection Issue #1—Custody
Advisor Selection Issue #2—Conflict
Test #1—Independent Advisor or Broker?
Investment Advisor Defined
Broker Defined
So What's the Difference?
So What's the Difference?
Test #2—Pure Independent versus Independent and Broker
Test #3—Proprietary Funds versus No Proprietary Funds
A Final Thought on Conflicts
Advisor Selection Issue #3—Competence
Competence Check #1—Do the Advisor's Credentials Meet Your Needs?
Competence Check #2—Is the Advisor Right for You?
Competence Check #3—Is the Advisor Following a Process That You Agree With?
A Final Thought on Advisors—Principles
Avoiding Mistake #5—Choosing the Wrong Advisor
Notes
MISTAKE #6: No Mistaking
Rule #1: Have a Clearly Defined Plan
Rule #2: Avoid Asset Classes That Diminish Results
Cash— The Illusion of Safety
The Illusion of Gold as a Way to Grow Wealth
Rule #3: Use Stocks and Bonds as the Core Building Blocks of Your Intelligently Constructed Portfolio
Rule #4: Take a Global Approach
Rule #5: Use Primarily Index-Based Positions
Rule #6: Don't Blow Out Your Existing Holdings
Rule #7: Be Sure You Can Live with Your Allocation
Rule #8: Rebalance
Rule #9: Revisit the Plan
The Ultimate Rule: Don't Mess It Up!
Portfolio Example
The “I Want to Beat the Market” Portfolio
The “I Need 7 Percent to Hit My Long-Term Retirement Goal” Portfolio
The “Get Me What I Need for the Rest of My Life with the Least Volatility Possible” Portfolio
The “I Have More Money Than I Will Ever Need and I Want It to Grow with Minimal Volatility” Portfolio
The “I Have More Money Than I Will Ever Need, Volatility Doesn't Bother Me, and I Want It to Grow Along with the Market” Portfolio
A Path to Success: Intelligent Portfolio Construction
Notes
You're the One
Note
CONCLUSION: Let's Roll!!
Notes
References
Index
End User License Agreement
List of Illustrations
Introduction
FIGURE I.1
FIGURE I.2
Chapter 1
FIGURE 1.1
FIGURE 1.2
FIGURE 1.3
FIGURE 1.4
FIGURE 1.6
FIGURE 1.7
FIGURE 1.8
FIGURE 1.9
FIGURE 1.10
FIGURE 1.11
FIGURE 1.12
Chapter 2
FIGURE 2.1
FIGURE 2.2
FIGURE 2.3
FIGURE 2.4
Chapter 3
FIGURE 3.1
Chapter 4
FIGURE 4.1
FIGURE 4.2
FIGURE 4.3
Chapter 5
FIGURE 5.1
FIGURE 5.2
FIGURE 5.3
Chapter 6
FIGURE 6.1
FIGURE 6.2
FIGURE 6.3
FIGURE 6.4
FIGURE 6.5
FIGURE 6.6
FIGURE 6.7
FIGURE 6.8
Guide
Cover
Table of Contents
Begin Reading
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THE 5 MISTAKES EVERY INVESTOR MAKES AND HOW TO AVOID THEM
Getting Investing Right
Second Edition
PETER MALLOUK
Copyright © 2021 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
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Library of Congress Cataloging-in-Publication Data is Available:
ISBN 9781119794332 (hardback)
ISBN 9781119794356 (epdf)
ISBN 9781119794349 (epub)
Cover Design: Wiley
Cover Image: © djmilic/iStock/Getty Images
This book is designed to provide information that the authors believe to be accurate on the subject matter it covers, but it is sold with the understanding that neither the authors nor the publisher is offering individualized advice tailored to any specific portfolio or to any individual's particular needs or rendering investment advice or other professional services such as legal, tax, or accounting advice. A competent professional's services should be sought if one needs expert assistance in areas that include investment, legal, tax, and accounting advice. This publication references performance data collected over many time periods. Past results do not guarantee future performance.
Additionally, performance data, in addition to laws and regulations, change over time, which could change the status of the information in this book, and do not reflect the deduction of management fees or other expenses. This book solely provides historical data to discuss and illustrate the underlying principles. Additionally, this book is not intended to serve as the basis for any financial decision; as a recommendation of a specific investment advisor; or as an offer to sell or purchase any security. Only a prospectus may be used to offer to sell or purchase securities, and a prospectus must be read and considered carefully before investing or spending money.
No warranty is made with respect to the accuracy or completeness of the information contained herein, and both the author and the publisher specifically disclaim any responsibility for any liability, loss, or risk, personal or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this book. All examples used throughout this book are for illustrative purposes only.
Preface
Over my career as a wealth manager, I have met thousands of individuals searching for a better way of investing. I noticed early on that most of the clients coming on board with my firm were terminating a prior advisor. It became clear to me that these clients weren't getting what they had hoped from their former advisors. While at times the issues were related to communication, relationships, and the like, sometimes the change was because the client wasn't getting the returns they had hoped, or their former advisor had blown up their portfolio. Mistakes had been made along the way.
Many investors don't enjoy investing, don't have the time for it, or don't feel they are particularly good at it. This type of investor searches for an advisor to alleviate the burden—to show them the way. Unfortunately, many if not most advisors make the same mistakes individuals often make. This is the tragedy of the financial services industry. As I have watched fortunes made, lost, and sometimes rebuilt again, I have observed the main problems that led to the deterioration of wealth. The conclusion is quite simple: In most cases, if an investor has greatly underperformed from an investment perspective, it is not because of the markets, but because of their own, or their advisor's own, mistakes. All of us, at times, are susceptible to at least one of these mistakes. Many of the greatest investors of all time acknowledge they have made them or are aware of them and actively put up mental roadblocks to prevent themselves from making them. For years, I have spoken about these mistakes, and this book will cover how to avoid these pitfalls and show a clear path toward achieving investment success.
Acknowledgments
This book wouldn't be possible without the ongoing efforts of Molly Rothove, Jessica Culpepper, James DeWitt, Brenna Stewart, and Jim Williams, all of whom contributed to this effort as well as to my newsletters, which are the constant source of in-house comedy prior to the editing process.
Special thanks to all of the incredibly talented people at Creative Planning, including those who helped with the research for the behavioral section of this book: Sarah Ayler, Andrew Horsman, Jeff Juday, Ashley Moulis, Meghan Perry, Conner Sivewright, Stacy Smith, and Chris Wolff.
A huge thank you to the clients of Creative Planning. I have learned so much from my clients over the years. Most importantly though, I learned that these are the type of people who make America what it is: the greatest place on earth to live. These folks make the economy go and grow and many of them have lived or are living the American Dream. My constant search for every possible way to help them has resulted in many of the things we do at my firm, and in the contents of this book.
To my mom who tricked me into believing I could do anything. I believed it until I was too old for it to matter. And to my dad, who taught me enough about investing at an early age that it became my passion. I especially cherish his advice to “ignore almost everything.” Thanks to my beautiful wife Veronica, who spent a lot of time driving on our family road trips while I worked on this book, and to my three wonderful kids Michael,1 JP,2 and Gabby3 for always keeping me focused on the most important things in life. Finally, thank you to those who helped edit and shape this book. All errors are my own.
Notes
1
He must have asked half a dozen times: “Is anyone going to read this book?”
2
Thanks for updating me on the NCAA tournament scores while I was writing.
3
Thanks for the hugs, delivered almost every hour on the hour!
About the Author
Peter Mallouk is the president of Creative Planning, named the #1 Independent Financial Advisory Firm in America by Barron's (2017). Barron's magazine named Peter the #1 Independent Financial Advisor in America three straight years (2013, 2014, and 2015). CNBC named Creative Planning the #1 Independent Wealth Management Firm in the United States (2014–2015). Peter is featured on both rankings of Worth magazine's Power 100, a list featuring the 100 most powerful men and women in global finance (2017, 2018). In 2017, Peter was a recipient of the Ernst & Young Central Midwest Entrepreneur of the Year Award. Creative Planning provides comprehensive wealth management services to high-net-worth clients, including investment management, financial planning, charitable planning, retirement plan consulting, tax planning, and estate planning services. Creative Planning currently manages over $70 billion for clients in all fifty states.
Legal Disclosure
Rankings and/or recognition by unaffiliated rating services and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Creative Planning (Company) is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed as a current or past endorsement of Company by any of its clients. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Rankings are generally limited to participating advisers. The Company never pays a fee to be considered for any ranking or recognition but may purchase plaques or reprints to publicize rankings. More information regarding rankings and/or accolades for Creative Planning can be found at:
http://www.creativeplanning.com/important-disclosure-information/
INTRODUCTIONThe Market Wants to Be Your Friend
Risk comes from not knowing what you are doing.
—Warren Buffett
You might be wondering why this book appears to be flipping you the bird right out of the box (see Figure I.1).1 Well, that's the market for you. We often hear about the market averaging around 10 percent over long periods of time. That's true. It just doesn't do it in a nice, linear, stress-free way. It's all over the place. Let's check out the graph in Figure I.2 with the returns by year.
FIGURE I.1
So, yes, it is true the market has averaged about a 10 percent return over the long run. However, most investors never get anywhere near that return out of their stock investments. The reason is that the market return varies. A lot. All the time. To be a successful investor, you need to get comfortable with this concept to avoid the mistakes all investors make or are tempted to make, whether it's market timing, actively trading stocks, falling prey to misleading performance data, behavioral mistakes, or not having a solid, disciplined plan.
So, what keeps investors from earning the market return? Quite simply, investors prevent themselves from participating in the returns the market wants to give them. Investors go out of their way to make mistakes that keep them from getting the market return.
FIGURE I.2
The first step to moving forward is to rid yourself of the misconceptions you may have about what works and become aware of the most common mistakes and avoid them. That's what this book is about. Recognizing the mistakes to avoid can dramatically improve your investment performance, reduce your stress level, substantially increase the probability you will achieve your investment goals, and even improve the quality of your life.
Let's begin.
Note
1
“Flipping the bird,” otherwise known as “flipping you off” and a variety of other things, is a decidedly PG-13 concept. I am assuming you are 13 or that someone older than 17 gave you the book, and that this is not a concept you have never heard before or that you will take too much offense to. Besides, I'm not really flipping you the bird; the market is. I can't control that.
MISTAKE #1Market Timing
Boy, do I have an investment for you! It has earned about 10 percent per year over the last 88 years and has gone straight up. Check it out (see Figure 1.1)!
Now, what if I told you that return was real? More intriguing is that it is readily available to you. It's just waiting for you to participate. What is this incredible, magical investment? Well, it's something you may have heard of: the stock market.
If you are like most Americans, this sort of return seems like a dream. Numerous studies attempt to quantify the returns realized by individual investors relative to the market as a whole, and their conclusions are the same: Investors' stock portfolio returns regularly lag behind the stock market return and typically by a very wide margin. Market timing is the idea that there are times to be in the market and times to be out of it. Some people attempt to “protect” their money by exiting the market when they sense a downturn coming or load up on high-risk stocks when they anticipate a recovery.
FIGURE 1.1
Source: Data from S&P Dow Jones Indices, LLC 2014.
Let's get one thing straight right out of the box. Market timing doesn't work. It just doesn't. And don't tell me you don't market time either. Have you ever said or thought anything like this:
“I have cash on the sidelines, and I am just waiting for things to settle down.”
“I have a bonus, but I'll wait for a pullback.”
“I'll invest after [insert lame excuse here; some choices: the election, the new year, the market corrects, the debt crisis passes, Congress works out the budget, the Lions win the Super Bowl, or whatever].”
All of that is market timing.
Why would anyone want to get in the way of an investment that has perpetually produced such fantastical1 returns?
Quite simply, it is because the stock market doesn't go up in a straight line. Drawn as the returns actually happened, the graph looks like the one shown in Figure 1.2.
That still doesn't look so bad when we look at it from here, with the full benefit of hindsight. Of course, living through it is an entirely different matter. Imagine the emotional turmoil you would have gone through during the Great Depression, the feeling of inertia and futility you would have had to endure through the 1970s, or the market panic during the early part of 2020 (actually, you likely don't need to imagine that one!). With investing, even a few weeks can seem like forever, especially when the market is moving against you.
To be clear, there are many “markets.” The graphs we have looked at so far represent the Dow Jones Industrial Average, an index of 30 large U.S. companies with a history allowing us to go back more than 100 years. Today, the more common index is the S&P 500, an index of 500 large U.S. companies, like Microsoft, ExxonMobil, Google, Procter & Gamble, and Apple. While there are thousands of stocks, the largest 500 make up about 80 percent of the entire market. This is because companies like McDonald's, in the S&P 500, are hundreds of times larger than, say, the Cheesecake Factory.2
FIGURE 1.2
Source: Data from S&P Dow Jones Indices, LLC 2020.
Just so no one thinks I am selecting the most awesomest3 investment ever as an example, the same holds for small U.S. stocks, international stocks, and emerging markets stocks. The point is that all broad markets have done the same thing: Go up—a lot.
All of this looks pretty good, right? But to get these returns, you need to avoid making the first big mistake: trying to “time the market.” To avoid falling into this trap, it is critical to avoid the many people who are encouraging you to make this mistake: prognosticators on T.V., market timers, your buddy at work, your brother-in-law who “jumped out right before the last crash,” and the majority of the financial services industry, to name a few.
This group of market timers can be divided into two camps, as illustrated in Figure 1.3.
Now, that chart isn't scientific. I don't really know what percentage of market timers are incompetent and what percentage are dishonest. However, I believe that market timers fall into one of these two camps, and both are dangerous. Let's take a look at both groups: the Idiots and the Liars.
FIGURE 1.3
Source: Graph by Creative Planning, LLC
The Idiots
What to do when the market goes down? Read the opinions of the investment gurus who are quoted in the WSJ. And, as you read, laugh. We all know that the pundits can’t predict short-term market movements. Yet there they are, desperately trying to sound intelligent when they really haven’t got a clue.
—Jonathan Clements
There are perfectly honest investors and advisors who believe they can time the market. They believe they know something that no one else knows or that they see something that no one else sees. They often will tell you they got it right before, and maybe they did—once. These folks are often like the friend of yours who tells you “I killed it, baby!” when he returns from Vegas, but conveniently leaves out the five times he lost. They forget their bad decisions and remember their good ones. They may be well-intentioned, but ultimately, they cause harm to their portfolios and to the portfolios of anyone who listens to them. These folks need to get educated and learn the folly of their ways. Luckily, you will soon be able to spot these people, avoid them, and maybe even save them from themselves.
The Liars
There are three kinds of people who make market predictions. Those who don't know, those who don't know what they don't know, and those who know darn well they don't know but get big bucks for pretending to know.
—Burton Malkiel4
Unfortunately, many financial advisors know very well that the market can't be timed, but their living depends on convincing you they can get you out with their “downside protection.” This is the easiest sale in the financial advisory world. There is nothing a prospective client wants to hear more than the pitch that they can participate in the stock market's upward movement but avoid the pullbacks. There will always be people who want to hear this, and as long as those people exist, there will be tens of thousands of professionals ready to sell them snake oil.
I have also found that many financial advisors have been exposed to all the information they need to change their point of view away from market timing, but a big paycheck makes it hard to accept the facts. Much like a cult member finding definitive proof their founder is a fraud, the financial advisor can find the reality too much to accept and simply remain delusional and ignorant. As Descarte said, “Man is incapable of understanding any argument that interferes with his revenue.”5
The prognosticators in the media also are eager to give you big, bold market calls. I have been on several national business channels, including CNBC and FOX Business. Prior to the show, the producer always asks me for my thoughts on “where the market is going.” They are disappointed every time when I answer that over the short run, “I don't know.” That doesn't make for the most exciting guest in the world. One national cable network even branded me “The Time Machine” advisor because I kept prefacing my advice by saying I had no idea what would happen in the short run but was very confident about the long run. The graphics were quite amusing, with my head sticking outside of a time machine that looked mainly like an old-school phone booth.6
In short, if you want to get clients and be on T.V., the easiest path is to sell market timing. The financial services industry rewards the deliberate delivery of misinformation.
Why Is It So Hard to Beat the Market?
In an efficient market, at any point in time, the actual price of a security will be a good estimate of its intrinsic value.
—Eugene Fama
There are many reasons market timing fails to work, and there are many reasons investment managers will try to tell you they can do it. Let's start by looking at the big picture, then work our way through the investment gurus and their actual results.
Efficient Markets
The efficient market hypothesis was developed by Nobel Laureate Eugene Fama. This investment theory can be summed up like this: It's tough to beat the market because markets are efficient at incorporating all relevant information. Since a bunch of smart people (and not so smart people) all know the same thing about any given security, it is impossible to have a sustainable edge that will allow you to beat the market return.
Where there appear to be patterns that the market can be beaten, it is almost always due to the investor taking on additional risk. For example, there is evidence that small company stocks perform better than large company stocks over long periods of time, and this is very likely because they are riskier (more volatile).
While it is not my point of view that the markets are perfectly efficient, the evidence is fairly overwhelming that it is efficient enough to kick a market timer's butt.7 Regardless, it gives us a premise from which all the rest of the evidence will follow.
Being a Little Better Than the Market Isn't Good Enough
Why is it so difficult to go in and out of the market repeatedly with success? The problem is that many investors think you simply need to be right more than 50 percent of the time, when in fact, an exhaustive study by Nobel Laureate William Sharpe8 definitively concluded that the investor must be right 69 to 91 percent of the time, depending on market moves (Sharpe 1975). Good luck with that.
The Evidence (Research and Stuff)
The evidence against market timing is overwhelming.
In what may be the most exhaustive study ever done on market timing, Richard Bauer and Julie Dahlquist examined over 1 million market timing sequences from 1926 to 1999. The conclusion: Holding the market outperformed over 80 percent of market timing strategies (Bauer and Dahlquist 2001, p. 38). That's a lot of scenarios run over a long period of time with one overwhelming conclusion. It doesn't seem to square with what many people do, what we hear from the masses, the media, economists, investment managers, newsletters, and your friends. Let's look at each.
The Masses Get It Wrong, Over and Over Again
We do not have an opinion about where the stock market, interest rates, or business activity will be a year from now. We've long felt the only value of stock forecasts is to make fortune-tellers look good. We believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.
—Warren Buffett
For the average investor, there has been spectacular mistiming of the market. At the bottom of the coronavirus-fueled market meltdown in March 2020, investors obliterated records by pulling $326 billion from equities—more than triple the previous record from the 2008 financial crisis—and moving a record amount to cash. Within six months, the market had not only fully recovered but had moved into positive territory for the year. Investors had mistimed the market perfectly, breaking records both ways, both times at exactly the wrong time.
The Media Get It Wrong, Over and Over Again
The typical investor is getting their financial information from the media. It's important to note that the total sum value of all the information provided from the media regarding market calls is zero. Actually, it is less than zero because if you follow the guidance of the media on market calls, you are likely going to create a negative, rather than a neutral, result. Let's take a look at some examples:
“The Death of Equities.” August 13th, 1979, Businessweek—just prior to the biggest stock market run-up in history.
“The Crash… . After a wild week on Wall Street, the world is different.” November 11th, 1987, Time—the market proceeded to rocket 31 percent over the next 12 months.
“Buy Stocks. No Way!” September 26th, 1988, Time—just before the greatest 10-year run in market history.
“Will you be able to retire? With stocks plummeting and corporations in disarray, American's financial futures are in peril.” July 29th, 2002, Time—the market was up 21 percent from July 2002 through June 2003.
The media's job is not to inform you; it is to get eyeballs. Eyeballs lead to advertising revenue. That means they need people to read stuff and view stuff. Telling everyone things are going to work out just fine doesn't get eyeballs the way feeding into fear does. That doesn't just explain financial news; it explains most of the news.
