Quote:
Originally Posted by Slava
OK well, I'll give you the rationale for why this is so hard. Aside from the "you don't know where the bottom is", investor psychology is brutal. I've done this for clients, where we sold before 2008-09 and were in cash/near-cash. The selling is easy, because you stalk to people and say "I think we should sell" and literally no one wants to debate that for any length of time. For me, this was January 2008 and things were volatile, so people were concerned and that only made it easier.
The problem is getting back in. So, fast-forward to March 2009. We didn't know that was the bottom, and nothng new happened that day. There was no news and nothing that actually let you know we were at the bottom. Basically, things just started to go up and never went as low again since that time. The old saying (I think from an ad in the 70's) is that "they don't ring a bell at the bottom", and it's so true. So, we started to rise and instead of everyone in the media and such saying things like "buy now because we hit the bottom!" you have pundits saying "we're going to have a double-dip and we're not out of the woods" and things like that. Some people would say there were green shoots and we were seeing things improve, but they were shouted down. And for the individual you have a real psychological puzzle. I talked to numerous people imploring them to buy back in and got responses like "how do you know it won't cut in half again?!" and things like that. And the truth is, you don't know, at least not with 100% certainty. What looks easy today, with the benefit of perfect vision looking back, was uncertain and unknown at the time.
So, while it seems simple to say you could sell and buy back in again cheaper, it could be true. But the one element you have to see here is that I sold things in January 2008. The real pain happened in September 2008. What happened in between? The market rallied, oil hit an all-time high and I definitely got asked by people whether "I had a clue what I was doing". You're sitting in cash making a few percent and people around you are making way more. That's grueling and for me, causes a lot of anguish. It's extremely easy to second guess yourself. If you've seen the "Big Short" and watched Michael Burry there incredibly stressed out and knowing he's right, but there's no proof...it's like that (he had billions leveraged, so I'm not saying it's the same...but it's my entire livelihood and this is your lifesavings, so I can only say it's painful!). Just know that there is a price to pay if you're wrong, and also a price to pay if you're early.
And, since I'm getting pretty personal here, or at least I think I am, you might wonder if I think it's worth it? Well I sold almost everything in late January 2020 because things looked bleak. I do generally agree that it makes zero sense to just ride things down if you're pretty sure there is a major drawdown coming. But, I think that you need to have a lot of conviction in doing that, because I don't think it's as easy as it seems.
tldr; I'd be careful.
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So many of the people I knew that got out during the 08 crash never got back in until 2011 or 2012. I knew a couple guys that still weren't back in in 2018.
This sounds silly in hindsight, but at the time, it is not so easy and not so clear. If you were out in 2009, while the market was rallying, virtually everything you read was saying that it was a false rally and that things were still very bleak, with lots more pain coming.
But it kept going up.
So now it's 2010 and the market has rallied more than 20 or 30% and you feel like you've missed it and you need to wait for a pullback.
But a pullback never comes, and now it's 2011. Now you feel kind of stupid, and you really want a correction to save your pride. Plus, everything you read still says that there are still huge problems, quantitative easing is going to destroy everything, and the market has gone too far, too fast.
I saw so many people live exactly this.
And the most frustrating this is that it is basically the same, every single time. The same messages. The same advice. And the same mistakes. Humans are over-confident, and simply don't want to hear that they're not wired properly to be good investors.