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Dow 20,000 and Investor Emotions
A 2014 study from the consulting firm Dalbar found stock fund investors averaged 5.19% per year for the last 20 years as compared to the broad stock market which averaged 9.85%. Other studies have reached similar conclusions. The emotions of individual investors create a tendency to buy shares near market highs and sell shares near market lows. Of course, this is the opposite of the old investment mantra to “buy low and sell high.”
Through the lens of rational decision-making the kind of behavior does not make sense. When the markets are low, investments could be described as being “on sale” and a good buying opportunity. Warren Buffett said, “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
It can often feel better doing what everyone else is doing. After all, how can they all be wrong? It’s not always irrational. But at the same time, herding has been attributed to the cause of manias and bubbles. Taking time to remove oneself from news and opinions can allow for perspective and to see if the environment is extreme.
Buffett puts it this way, “Be fearful when others are greedy and greedy when others are fearful”.
Registered Representative of and securities offered through Cetera Advisor Networks,LLC, Member FINRA/SIPC. Advisory services offered through Carroll Financial Associates, Inc., a Registered Investment Advisor. Carroll Financial and Cetera Advisor Networks LLC are not affiliated companies.
Securities offered through Cetera Advisor Networks LLC, member FINRA/SIPC. Advisory services offered through Carroll Financial Associates, Inc., a Registered Investment Advisor. Carroll Financial and Cetera Advisor Networks are not affiliated. Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested in directly. The views are those of Michael Jette and Ben Ganson and should not be construed as investment advice. All information is believed to be from reliable sources: however, we make no representation as to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Consult your financial advisor for more information.