Friday File: Lessons for a Volatile Week (plus two buys)

By Travis Johnson, Stock Gumshoe, February 9, 2018

Welcome back, volatility! I’ve got the remainder of my Annual Review to share with you in a separate post that will be released later on, but thought I’d get my big picture thinking out of the way for you first… including a brief update about the few portfolio moves that I made today as we close out this crazy week.

So yes, THIS is the week that finally reminds us of some great market lessons:

1. Don’t try to time the market. The day when you most want to sell everything at 9:30 am and hide in a hole might well be the day that what looked to you like a crash reverses. Missing part of a crash makes you feel better, but missing just a couple good days of a strong market each year is enough to make your long-term portfolio go from a money-maker to a money-loser, and those strong days in the market often come right after or near the really, really bad days, when you least feel like having your money at risk.

“Getting out” will sometimes save your capital in the shorter term, which is obviously of primary importance for some folks (like those already well along in retirement and who got too aggressive with their “risk” exposure, for example, or people facing college bills in a couple years — as far as I’m concerned, money you need in the next few years should never be in the stock market), but for those who need to save and compound over a long period of time to build a retirement nest egg, which is most of us, “not getting back in” has historically been the biggest failure — poor timing driven by sentiment (buy high in euphoric times, sell low in panics) is the primary reason that the average mutual fund investor has consistently done dramatically worse than the average mutual fund over long periods of time.

2. Do prepare yourself mentally that the market goes down as well as up, and know what you want to do when that happens… and preferably, write it down so you have something sane to look at when you’re feeling like the world is upside down. Early Tuesday morning, after the market scared everyone on Monday, I was running through Berkshire Hathaway scenarios on paper, seeing what looked like attractive price scenarios if I was lucky enough ...

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