What a week:
1. CNBC shared SigFig data on how timing the market or panicking can cost investors:
Investors who try to time market highs and lows almost always hurt their performance over time. An analysis of investor behavior from SigFig, an investment planning and tracking firm, found that during the market correction in October 2014 roughly one in five investors reduced their exposure to equities, mutual funds and ETFs, with 0.6 percent selling 90 percent or more. That may have seemed smart at the time, but SigFig’s analysis found that the more people sold, the worse their investments performed.
“Those who appeared to panic the most—for example, those who trimmed their holdings by 90 percent or more—had the worst 12-month-trailing performance of all groups,” the researchers concluded. Their portfolios delivered a trailing 12-month return of -19.3 percent as of Aug. 21, compared with -3.7 percent for the people who did nothing during that October correction.
2. At SigFig, we believe that good investing means following a diversified strategy with discipline and long-term focus.
Along similar lines, Ron Lieber of the New York Times writes:
The impulse when the stock market falls hard for a few days in a row is to do something. Anything. Our life savings are often on the line, after all.
But that’s just the thing: Stocks are most useful for long-term goals. So unless those goals have changed in the last few days, it probably doesn’t make much sense to overhaul an investment strategy based on a blip of market activity.
So pour yourself a drink, or sit down with a pint of ice cream, and consider the following six things.
Here are his six things.
Lieber also profiles some pension fund managers and the folly of trying to beat the market, and a perhaps unusual method they use to stay on course:
On days like Thursday and Friday, when the stock market is declining, it’s hard to sit calmly and do nothing, especially when commentators are yelling on television. So when the two men are feeling itchy, they make for the hills, literally, running on trails near Reno for 10 or 15 miles at a time.
They can’t trade while they are in motion, but that’s probably a good thing. “We spend a lot of time up there talking each other out of stuff,” Mr. Lambert said. “In investing, the answer 90 percent of the time is to do nothing.”
3. Ben Casselman of fivethirtyeight.com tells us when to pay attention to the market and when not to:
We don’t write much about financial markets here at FiveThirtyEight. That’s intentional. Markets are important, but there’s already lots of good coverage out there. There’s also lots of really bad coverage — the deluge of minute-by-minute market data makes it incredibly tempting to see signals in what is really just noise. We don’t follow every up and down of the market because, unless you’re a trader, it just doesn’t matter.
But there are times when even non-traders should pay attention to the markets, either because they’re so bad they’re affecting the rest of the economy (think Lehman Brothers in 2008), or because they’re sending a signal about bad news around the corner. How do you know when to do that? You can’t, at least not perfectly. But by following a few simple guidelines, you can avoid getting caught up in the hype and stay focused on what really matters.
4. Published August 19th, James Osborne’s piece on “the worst question of them all” happened to be quite timely:
It’s summer, or at least it was recently until our oldest went back to preschool. Summer means family gatherings and kid’s birthday parties and BBQs and a pretty jammed social calendar for us. I try pretty hard to avoid the “professional” talk at social events, but I’m never 100% successful. Inevitably, somebody asks the question. I really hate the question. You know the question.
“So what do you think of the market right now?”
This is the part where I try really hard not to let out an exasperated sigh and shrug my shoulders. But first I’ll break down what drives me nuts.
5. And now, for something completely different.
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