2020 offered two particularly abject lessons on why “Let’s wait and see.” is almost always a terrible strategy.
- COVID.
- The presidential election.
“Let’s wait and see.” can take many forms.
“I just want to get out because of the uncertainty of (insert scary event). Once things calm down and return to normal, we’ll get back in.”
Statements like this typically follow a period of market decline or when there is a particularly harrowing event looming (i.e. every election season).
2020 had both in the highest form imaginable. Here’s the chart from January through August (COVID):
Here is September through the end of 2020 (Election Season):
There are a couple of timeless investing lessons that can be learned from these two periods.
Market Rebounds Mirror the Decline
Generally speaking, market rebounds tend to mirror the velocity and trajectory of the decline. The point at which investors most want to sell - and the point at which most actually do sell as this can be observed in fund flow data - is the point at which the market is about to turn north again. So, the point at which investors most want to “wait and see,” is likely the absolute worst time to make that decision.
Markets Are a Leading Indicator
Lest investors forget, the market is a leading indicator, not a lagging indicator. Meaning, the market is going to figure out that everything isn’t as bad as we think it is long before we realize things aren’t as bad as we think they are. By the time we make that realization, the market has already resumed the trendline up.
This is evidenced by the 1st chart above. The market broke into new high ground while the pandemic and economic devastation were still raging on.
“Let’s wait and see” is typically a terrible strategy because we are terrible timers and predictors of what will happen next. The point we begin to feel more comfortable is often well behind the point at which the market has already moved on. Remember this when things go south again…
Stay the course,
Ashby
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This post is not advice. Please see additional disclaimers.
