........ an interesting study .......while the market averages typically yield 10-12% annually over the lifetime of an individual investor, most of these investors only capture about 2/3 of this return. The reason was not due to poor funds that these investors put their capital into, but instead resulted from the fear and greed cycle that so many can fall prey to. In this study, an investor was much more likely to liquidate a portion of their account - or even their entire retirement - during difficult market times. In essence, the typical investor would take money out of the market at the worst possible time (near a market bottom) due to the fear of further price deterioration. Conversely, individuals were more likely to add to their accounts or even leverage positions when the economy was running at full tilt (or closer to a market top) which put more assets at risk precisely at the wrong time. The study simply pointed out that a disciplined and steadfast approach yielded much better returns than trading according to the fear or jubilation that comes with bear and bull markets
I have known several wealthy professionals and businessmen who did exactly this. They panicked at the wrong time. They could not stand the erosion of the value of their portfolio and decided to sell everything and have everything in cash. This is exactly what they are doing now!
They need peace of mind and their mental setup breaks down at important turning points.
They will be the same investors that, feeling left out after a 20% move in the market, decide to take aggressive positions trying to catch up the lost ground. They will be penalized again by buying close to a market peak in the midst of economic and financial euphoria.
Keeping a sound investment perspective is a difficult psychological feat. No doubt about it. And this is the reason many portfolio managers practice meditation to keep a sound and relaxed thinking process.
More on https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
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