Quote:
Originally Posted by DSOs
FYI/FWIW: 'The market' may like the proverbial "wall of worry", but I highly doubt that individual investors—especially learned shoeshine investors—like it.
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Individual investor have been shown in studies to behave irrationally when it comes to reacting to financial news. Look up the book Your Money Your Brain by Zweig. It's a fascinating new field on neuro-economics.
People have a recency bias where they tend to go with what was most recently happening, irregardless of what long-term outcome has already been proven out.
Example: in our current bull market, what most people think may be (Oh yes its going up, I better not get left out in the side lines so I better buy in). This is probably the wrong side to take because in a bull market prices going up means stocks are expensive so one should not allocate as much (ie, rebalancing according to their target asset allocation).
In a bear market (2000, 2008), what most people think is (OMG, I am losing half my money, wall street is terrible, look at all the money I lost, I'm never gonna trust my money to wall street again!) They pull out when stocks were at bargain basement prices and they miss out on the huge run back subsequently. In a bear market, if you can, you need to back up the truck and get in on the equity sale.
There is a piece I read about a high earning physician couple who sold out of their stocks in 2008 after the markets crashed. I mean they were scared about losing all their money.
Then in 2013, last year (in the biggest bull year in a long time, 30% return by the market, insane) they bought back in because they said they could afford to sit on the sidelines.
Those poor poor souls. Acting exactly the opposite of what SHOULD'VE been done.
They sold low (2008) and bought high (very high, 2013).
When they should've bought low (keep saving and investing in 2008, regardless of panic) and then sold high (2013, they should be very careful about the bull, allocate money as determined by their target asset allocation and this likely means more money into bonds and cash)
There's a 60min piece I watched that told of the doom and gloom of the people who were losing their retirement after the 2008/2009 financial collapse. HELLO!?!?!?!?? if you are nearing retirement why the heck are you that heavy in stocks...so much that you are going to be down 40-50%?!?!?!!?! They probably have no idea what asset allocation means.
When I am nearing retirement I could care less if the market dropped 90%. I will be very low equity at that point and I would have already through my years of high saving and low cost investing holding out for the long-run that I would have already a very sizeable portfolio by that time. So it will be relatively safer assets than equity.
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Totally BUSTED in 2008 & still BUSTED in 2014!
