Buy high, sell low problem once again in 2020

Buy high, sell low problem once again in 2020

April 09, 2021
Share |

One of the biggest challenges we face as investors is controlling our emotions when it comes to our investment behaviors. Ideally we'd like to buy low and sell high. However, time and time again the data reveals we do the opposite. We buy high and sell low (or sell low and buy high, which is the same problem, only timed differently). The attached Morningstar chart shows investors' asset movements in 2020. In March, when the stock market prices declined about 30% in 30 days, investors sold low; the chart shows both bonds (orange and yellow) and stocks (blue) being sold at a volume of $3.3 billion. This selling behavior continued for stocks (blue) in April, May, June, July, August, September, and October at about the same levels. You may recall the stock market began its strong recovery all throughout those seven months, but investors kept selling. Finally, in November, investors net capital flows were positive for stocks. But by then the stock market had already recovered much of its prior loss. 

Behavioral investment advisor fiduciaries can help investors avoid this behavior. Finding one can be the challenge, however. This is because they represent only about 1% of all advisors working in the markets today. It's like finding a needle in a haystack. I'm happy to report I've setup my company to be and I am a behavioral investment advisor fiduciary. And if you're not a good fit for my practice, I can refer you to other 'needles'. (Not the best metaphor for people afraid of doctors' needles!)