Buy and hold, the most repeated investing advice on the planet, is still one of the most difficult to follow. Why? Because it’s almost impossible to overcome the social, economic, and psychological forces that markets impose on you in a serious downturn.
Find that hard to believe? Then imagine the market has fallen by 30% since its peak a few months earlier and your spouse just lost their job. Don’t worry. Buy and hold, right?
Months go by and now the market is down 40%. Your spouse says to you, "Honey, we need to get out of this. Think about our children’s future."
Meanwhile, one of your closest friends is bragging about how they sold when the market was down only 15%. While one market commentator after another is saying how it’s only going to get worse. You’re still buying and holding, yes?
Another few months go by and the market is down 50% from its peak. Your spouse accuses you of always having been reckless. This time approaching you more urgently. "Honey, if you don’t do something, I don’t know if I can do this anymore. We’re ruined."
You see, it’s not just you in a vacuum with the numbers, trying to keep yourself sane. It’s your partner, your friends, the media, your children, your co-workers. They all play a part in this; over time slowly adding pressure points, slowly chipping away at your emotional stability.
Maybe you think you can resist these forces, but so does everyone else. Consider this: how many investors buy stocks thinking they will sell at the bottom? None. No one thinks they will be the one to crack. No one thinks they are going to make bad future financial decisions, including you and me. But, somehow, a great many of us still do. — Adapted from ofdollarsanddata.com