The Internet Remembers

Not getting done in by big calls.

Eddy Elfenbein poked a little fun at Felix Salmon for a video Felix made in 2010 that pretty much said to sell stocks now (meaning 2010 when he made the video). The market is obviously up a ton since then but there were some useful tidbits in the video nonetheless.

He said stocks are dangerous things to own and you can lose a lot of money. Irrespective of the call to sell, it is not that stocks are dangerous but that they can trigger self destructive behaviors that have the net effective of being dangerous. The simplest example is panic selling after a large decline only to watch the market rocket higher from the sidelines. The media would have us believe there has been a lot of that on the part of investors from the financial crisis, maybe that is correct but even if it isn't we know there was plenty of selling at the bottom, that is what a bottom is.

"The fact is we're entering a period of massive volatility" he said back then. That may have been true until it wasn't. Volatility of course comes and goes, I have said numerous times that volatility goes with the territory of owning stocks. Not everyone can sleep with normal equity market volatility which is ok, that's a know yourself type of thing, you either need to ratchet down the exposure or avoid the asset class altogether, of course there consequences for that. But having the wrong asset allocation (too much equity exposure) takes you back to stocks being dangerous.

He did not think stocks were a great place to be back then and that you could have sold then, having recovered a fair bit from the 2009 low. If you've been reading my blog for any length of time you know I am not a fan completely selling out ever as a tactical move. Changes to asset allocation based on life events and not triggered by emotion are a different story but it is too easy to get this wrong which is why I favor smaller moves along the lines of what I did yesterday buying BTAL.

The video certainly was unfortunate but plenty of pundits make big calls that turn out to be wrong. Having opinions is one thing, going all in with your money, like selling everything or putting it all in gold or something else like that, is an absurd and unnecessary bet that takes on tremendous risk. In theory, there may never be another eight year period in your investing lifetime that matches the eight years since Felix' video. Not that the stock market is permanently broken but in eight years the S&P 500 is up 145% per Yahoo Finance, if that is not repeated in your lifetime and you heeded Felix' advice but have now changed your mind, then you would have missed literally the best period in your life. A lot of ifs there but it makes the point.

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