Successful investors outperform by being patient and riding out the volatility. Losers panic and sell at what might appear to be the beginning of downturns. Losers make the mistake of thinking they can predict what will happen next and unsuccessfully time the market. Here’s proof that Panic Selling Is A Failing Strategy.
The above comments, and those below, have been edited for the sake of clarity and brevity to provide a fast and easy read and have been excerpted from an article* from BusinessInsider.com originally entitled Panicking is a horrible investment strategy and which can be read in its unabridged format HERE.
Bank of America Merrill Lynch’s Savita Subramanian examined what happened to stock market investors who sold at the first signs of volatility, i.e. sold after a 2% down-day and bought back 20 trading days later (provided the market was flat or up at the end of that period), and found that “the strategy has underperformed the market on a cumulative basis since 1960 both overall and during every decade…”
The table below shows how sitting in the S&P 500 compared to panic-selling during the past ten decades.
Even during the bad periods, panic-selling was a failing strategy.
Related Articles from the munKNEE Vault:
Robert Shiller’s revered stock market valuation ratio, the so-called CAPE, is crappy at predicting 12-month returns. Here’s proof.
Just because stocks are expensive doesn’t mean investors should immediately cash out and prepare for imminent price declines. Why? Because elevated P/E levels are not that reliable in predicting potential market performance. Here’s the proof.
Predicting what the stock market will do in the next 12 months is tantamount to predicting coin flips. Here’s more proof that past stock market performance tells you nothing about future results — literally nothing.
Pullbacks happen, and usually the market recovers, so trying to time the market is probably a fool’s errand – and a money loser.