The sensible solution would be for investors to put their money into low-cost index funds and just keep it there. But that’s hard to do when the market is extremely volatile. Most of us find it difficult enough in normal times to take a long-term approach. So when prices are rising and falling two per cent a day, and when it seems like getting in or out of the market could be worth ten per cent of our portfolio’s value, the temptation to try to time the market is hard to resist. (The way the financial media covers the stock market—with each rise and fall treated as a major event—only exacerbates this problem.) Unfortunately, the same psychological forces that make investors bad at rating money managers also make them bad at market timing: all else being equal, they’re prone to sell at the bottom and buy at the top. And, the bigger and more dramatic the swings in the market, the more likely we are to make the wrong decision.
James Surowiecki The New Yorker
I am heading out the door to enjoy the slush of Seattle. But before I do, I wanted to share this article with you – a thoughtful reflection of 2011, that includes some sage advice, highlighted above.