Most Investors Sell at the Worst Time—Here’s Why It Hurts Return

During their recent episode, Taylor, Carlisle, and Chris Bloomstran discussed Most Investors Sell at the Worst Time—Here’s Why It Hurts Return. Here’s an excerpt from the episode:

Jake: The unfortunate thing, is there’s a catch too there where in order to fully believe in why you should expect to get a 6% over 30 years, let’s say, you have to do a lot of work to understand why that would be, and what’s the argument for and against that. Chances are, if you haven’t done that work when it does, if you do buy at a secular top, you’re going to get spooked out of it at the worst time. That’s Just how everyone handles securities, unfortunately, unless you’re a little bit weird, really.

And so, unfortunately, I think there’s going to be a lot of people who probably make the bad decision in the tough time when they really should be adding, they’re going to be punching out, because it’s too painful to watch everything going down. I don’t know how to save people from that, but I think that’s unfortunately what history shows is the path that is probably the most likely.

Christopher: Yeah. You think about what the asset gatherers, the old brokers, now wealth managers– I would say if at two or three of these seminal moments in time where you’re at a washed out panic low, where you’re in a financial crisis in 2008, 2009, when you’re in a pandemic of 2020, if you’re charged with the allocation and the investment of your customers capital, if you can walk those people off the ledge from making a terrible decision by selling everything at a low or chasing into a tech bubble [crosstalk] at the wrong time, the advice there at the margin just saves–

If it saves 1% or 2% or 3% a year, that’s enormous. Because when you cement a loss in 2002, because you owned a bunch of tech or you cement a loss in 2008 or 2009, you’ll never recover that capital. You’ll never get it back. Hugely important.

Tobias: Compounding that is that value just tends to recover first and recover fastest. A big portion of value’s returns come from that early stage of the recovery. We tend to lag at the end of the cycle when everybody else is having their party. We started selling off in this most recent sort of little drawdown. My portfolio peaked in-

Jake: 2015? [laughs]

Tobias: -on Thanksgiving. And it plummeted like a stone for Thanksgiving.

Christopher: Yeah, I was down, I don’t know, 7% or 8% just in the month of December. But we’re up 7% or 8% or 9% or 10% or whatever it is this year.

Tobias: Recover first.

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