

Buying High, and Selling Low

Think about how investors behave in every market cycle. While serious market downturns occur regularly, investors are shocked each time the bear arrives. They often sell at or near the bottom. The risk seems too painful to swallow just at the point when risk is most negligible. Later, people tend to buy back in long after stock prices have rebounded.

Over the twenty-five years from 1980 to 2005, the S&P 500 returned an average of 12.3% a year according to Vanguard Funds. Yet over that same time, the average equity investor earned just 7.3%. They sold every time the market dipped and bought every time it rallied. This wide discrepancy between potential returns and reality lies in human behavior, a pattern of buying high and selling low. What are you doing with this current decline in stock prices?

Categories: General
Richard Leader