Holding onto investments for the long-term, through the Bull and Bear markets (increase / decrease), is preferable to selling.
NBL only recommends investing for the medium and longer term, weathering short-term turbulence, building up eventual gains.
A REMINDER FOR US ALL OF A SOUND INVESTMENT PRINCIPLE
CAN YOU SEE THROUGH IT?
Experience has shown those that weather the storm rather than panic and sell, gain over the longer term. But at timesit can feel that the uncertainty of a Bear Market is too long a term, and waiting for markets to improve can test your investment resolve. It’s human nature to react emotionally to these situations. So we come back to timing which, even for those with years of experience and a natural sense of how markets are going, is never ever a certainty.
Everyone wants to buy when prices are still low but everything is on the way up to a big rise. This can be an even more worrying time for experienced investors than when things are falling or stagnant. There’s a great deal of human psychology at play here – for some the fear of loss outweighs the thrill of potential wins and they remain cautious. Others who are optimistic by nature or experienced push aside thoughts of downturn and hitch the ride on the up.
THE COMPLEXITY OF THE MIND COUPLED WITH OUR EMOTIONS
For those wanting a deeper dive into the workings of the human mind in these situations, look up Prospect Theory. It was developed by Amos Tversky and Daniel Kahneman in 1979 as a way of analysing why people make choices with their finances. Broadly put (and this was complex work for which Kahneman won a Nobel Prize) it proposes that people feel their losses far more than their gains, and will then make decisions accordingly.
With all of this complexity at play, we come back to our original statement – it’s time in the market that’s going to pay off, rather than the stress of trying to get the timing in the market right and make decisions.
What’s the first step to achieving this? Don’t look at your investments every day! Markets react to news, which can break in seconds. No one can predict this and staying out and trying to get in quickly can lead you to miss a rise. If you’re hell bent on the crystal ball approach, you may well miss a surge, whereas if you sit it out, turn off the updates and go and do the gardening instead, you may well just ride the rise.
We know it’s not an easy time in the market right now, and that may be stressful for our investors. But we only ever recommend investing for the medium to longer term. And if you can weather the short term turbulence, you’re likely to have built up better eventual gains – it can just feel uncomfortable along the way but it is so important to stay the course.
