Our advice is simple: If you have a well-developed plan, one that doesn’t take more risk than you have the ability, willingness and need to take, then you should stick to it.
For us to believe that we should abandon a long-term, buy-and-hold strategy, we would have to first be convinced that markets are no longer efficient, that the market is now mispricing assets and is reacting slowly to new information. It is hard to imagine that markets have gotten slower at reacting to news. In fact, markets incorporate news into prices almost instantaneously.
As for trying to time the market, we again rely on the historical evidence. When a client suggests just getting out until things are clear again, we point out that the evidence on market timing is even worse than on stock selection.
One reason market timing fails is because so much of the market’s return occurs during very brief and unpredictable periods. Another reason is because investors have to be right not once, but twice. Deciding to get out is easy compared with deciding when to get back in. Investors who go to cash may be “whipsawed.” They will get out after a severe drop, miss a big rally and jump back in only to experience another severe loss. They end up worse than if they simply stayed the course. That is why we believe going to cash is not the winning strategy.
Seeing Beyond a Crisis
Some investors see crisis and risks, but they cannot see beyond that. In that moment, it can be difficult to hear the message to stay the course. But it is a message worth repeating because it is the best advice. History provides us with that evidence.
Thus, our advice will continue to be the same, because the science demonstrates that this is the most likely way to achieve one’s goals. When we find compelling evidence, published in peer-reviewed academic journals, that there is a superior alternative strategy, we will do what smart people do — they change their strategy in the face of new evidence.
Noted author Peter Bernstein offered this insight: “Even the most brilliant of mathematical geniuses will never be able to tell us what the future holds. In the end, what matters is the quality of our decisions in the face of uncertainty.”
We are eager to continue the conversation, please contact any one of our advisors