Buying High and Selling low

Buying high and selling low is a sure-fire way to ensure terrible financial outcomes. Why, then, do so many of us instinctively do it?

Basically it’s because, when the going gets tough and we’re put under pressure, us irrational, bias and emotional humans are prone to hitting the panic button.

Panic 1

When markets are high, we try and buy the flying stocks, shares or investments, because we’ve heard that this particular new bright shiny thing is on the rise. The unfortunate nature of this, is that by the time Joe Public has become aware of it, it’s usually far too late. That particular ship has already sailed and you’ve missed most of the uplift.

We often forget to stick to what has always worked, setting aside our sound judgement in favour of chasing the next big thing that the media or your colleague at work has told you about.

And yes, this absolutely does include Bitcoin or any other crypto-currency.

Panic 2

When markets are low or falling fast, we also panic. We think that the financial world is going to end, that capitalism is failing us for the first time since its inception and that there is no way we will ever bounce back.

What do we do? We sell low to avoid things slipping further, cutting our losses and running to the hills.

The most difficult aspect of managing your money when markets are volatile, is truly understanding the principles of investing and standing well clear of those panic buttons. We know that any market decline is temporary, just like we know that, over the longer-term, markets will recover and move back into positive territory.

The issue we’re dealing with is our own irrational fears, insecurities and anxieties… thinking that the end really is nigh.

Unless the world as we know it is literally about to end, the markets will continue to act as they have always done. Growing on an upward trajectory, with a reasonable amount of short-term uncertainty and volatility along the way.

If in 2008 you had done what the global media seemed to encourage, i.e. panic, sell everything before it’s too late and accept that the world is going end, then today you would certainly be in a far worse financial position than if you had just ignored all the media noise and simply gone about your day.

In fact, let me illustrate this: If, say, on 2nd January 2008 you invested £100,000 to track the MSCI World Index (the world's greatest equities), and then bailed out in mid October 2008 - when the Credit Crunch was in full swing and the market hit its lowest point - you’d have lost 33% of that investment. A return of a measly £67,000.

However, if you had simply ignored the noise, continued on the long-term investment train and waited until today (18th July 2019) before logging into your investment account for the first time in over 10 years. Guess what? You’d be pleasantly surprised to find that you now have a tidy 295% return, with your £100,000 investment now resting at £295,000, all for doing NOTHING.

I wonder, what’s best?


Alfie Mullan, July 2019

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