Daniel Crosby, Ph.D.’s Post

“I want to wait until things are more stable before I invest” “What does that look like?” “Greater economic certainty, stock prices stabilizing …” “So you want to wait until it’s more expensive?” “No, maybe prices will drop even more” “So you want to wait for even greater uncertainty for you to believe things are more stable?” “Um …” The to invest is always now.

I agree that there is always a reason to sell, and the more obvious the reason the greater the opportunity. I just think some nuance needs to be added to balance the framing bias at play here. E.g. (i) you probably want to dial down your reliance on the market as you approach retirement, (ii) the period preceding this and conveniently left off this chart was pretty ugly, (iii) for a goals-based investor, there's nothing wrong with systematically reducing your equity exposure as bull markets get long in the tooth (i.e. its not a binary decision) etc etc. Using charts like this are good, but we shouldn't fall into the trap of absolutism, either

It is so difficult in reality because as humans we love a bit of recency bias. Ie. What is happening today is the most important thing. Then you overlay the news … oh the news… don’t get me wrong, times are tough and they are going to get tougher. However, current news makes it sound as though it has never been as bad. The biggest challenge is to step back and look at pictures like this to move out of the fish bowl (recency) and into the helicopter (long term view).

One of our clients recently said the world blows up every six months and financial planning keeps the chaos at bay. This post certainly brings this to light.

I think it needs to be pointed out that an index is a carefully curated basket of stocks that adhere to certain criteria. By definition, they are subject to survivor bias thus creating this upward drift that always seems to be catching people. Unless you own nothing but this index then these are largely irrelevant comparisons. Also pertinent is the time scale - there are extended periods (decades) where the market went nowhere. That's fine if your time horizon is 30 plus years but I would guess that for most this is not the case.

I remember talking to investors in September 2008 who were getting out of the market. They couldn’t see me shaking my head while I asked them what is their signal to get back in. An overwhelming majority of the answers were some form of when the market is back to normal. So, they didn’t call in October 2007 when it started and they didn’t call in March 2009 when it ended, but they knew.

Black Swan events, funny how often these statically improbable risks show their faces. Though this particular graphic doesn't do the last 24 months any justice.

Hi Daniel, what type of investing are you suggesting there is never a bad time to get started? I could agree if you're talking about getting into an S&P Index with a plan to hold for years/decades.

Thank you for sharing this. That's why Principle #1 at BetterInvesting is Invest Regularly (and stay invested)! It's only worked for over 70 years...