My Sunday Washington Post Business Section column is out: Missed the big market rally? Here’s what to do now.

In the office, we have been getting lots of calls from people who missed the big move off of the 2009 lows. What should they do in those circumstances?

Here’s an excerpt from the column:

“What do you do now? How to begin to repair the damage?

It is a two-part process: The initial steps are designed to help you overcome your risk aversion — the emotional aspects of investing. Call it your “erroneous behavioral economic zone.” After we fix that big underutilized brain of yours, we can move on to the investment steps that allow you to work your way back into markets.”

Some parting thoughts:

“When your investing timeline is measured in decades, you cannot afford to continually miss an ongoing rally because of day-to-day volatility.

Markets that rally 150 percent come along once a generation. If you missed this one, it is probably because you based your investing on some form of guess as to what stocks were going to do. Experience teaches us that we are all pretty bad at making forecasts nearly all of the time. This is why any prediction-based investment strategy is doomed to failure. The outcome is binary: Your guesses are either right or wrong.

Consider instead a probability-based investment approach. The idea behind asset allocation is to allow mean reversion, rebalancing and diversification to work in your favor. No guesswork required.”

Go read the whole thing here.


Missed the big market rally? Here’s what to do now.
Barry Ritholtz
Washington Post, June 16 2013  

Category: Asset Allocation, Investing, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

16 Responses to “What Should Investors Do If They Miss Big Moves?”

  1. VennData says:

    Even if you guessed right, what does that mean for your future guesses? Nothing.

    Do not let Rupert Murdock influence your thinking, this is what happens, you lose money.

  2. george lomost says:

    I can’t help being gloomy about the future. My experiences as an immigrant from E Europe, being exposed to all the life stories of family and of other immigrants make me a lot more skeptical than what I’m guessing is your life experience (from your bio blurb). After more than fifty years I still have trouble wrapping my head around the immense wealth in this country and how people here seem to take it as a birthright.

    What has helped me in my limited success as an investor is the realization that there is an immense amount of money in the financial system and it has to go somewhere. The more often I remind myself that if something is to get sold off, it has to be put somewhere else [Impressionist paintings, Rwandan bonds (?!)] and the trick is to try to figure out where it will go, the better things begin to make sense.

    Happy Father’s Day everyone.

  3. macrotrader603 says:

    simply following key moving averages will have ‘investors’ / traders on the correct side of most big moves. Forget ‘guesswork’ and opinions.

    • The problem with that strategy is it whipsawed you in 2012 — it lost big money when markets were up smartly.

    • leopardtrader says:

      Trend following strategies produce mediocre results in time. Asset prices statistically range 80% of the time while trends 20%. Trend followers are losers in ranging markets. Even during a trend..it is usual to be late in entry and late in exit. Investing/Trading is a business so no mechanical system like Moving average works in the long run. Hard work ( research), experience and skill is required instead of some holy grail mechanical system. It always look good looking back…

  4. > Most of the people I speak with who have missed this huge move have been consuming a diet of doom and gloom.

    Isn’t this the truth? Nice piece, including your give and take with the commentators in the WAPO column, which you don’t often seen in column pieces. The person predicting DOW 5000 is presumably shorting the market in extremis in view of his conviction . . . I would love to know what he’s really doing . . . and what his performance has been . . .

  5. Gloomy says:

    Can you please address what investors should do if they missed the big move in gold from $250 dollars an ounce to its current value of nearly $1400 dollars an ounce?


    BR: Park your cognitive bias a moment, and pay attention:

    Commodities are part of the asset allocation model. So rather than guess where gold is going to go — and I am willing to bet you a few pounds of bullion that I owned it at much lower prices than you did — you end up with it in your portfolio in proportionate amounts (Gold is a tiny asset class compared to debt or equity).

    Since you wrote this comment a wekek ago, Gold is off over $150. How much more expensive guessing do you have left in your tank?

  6. bgad says:

    I read the column and thought that it was quite good advice. However, the surprising thing to me was that this represents classic Buy & Hold investing with perhaps a slightly more modern asset allocation. In the past, you have argued very forcefully against B & H. Why the change of heart?

    • No change of heart — you Humans need simplicity — your species cannot follow a complex entrance/exit strategy that outperforms because your emotions blind your logic.

      • bgad says:

        I agree. I finally learned this fact 10 yrs. ago after reviewing all of my previous mistakes. I’m just not convinced that after taxes and expenses that you Gods can do any better.

  7. leopardtrader says:

    I am not sure investors make guesses. They rather take risks in expectation of minimal risk with decent reward. They make this decision based on all they know including future prices. I therefore do not believe investors blindly bet ( guess) on any outcome ! Granted bets can be wrong but with well defined risk management or emergence of new information it is still not a mere guess.

    It is unforgivable for any manager to miss this rally from 2009. There were still abundant opportunities to join in 2010, 2011 and even 2012. The biggest problem for many investors ( especially USA based) is not to notice that the investment of the last decades is no longer the way this time around. Information is now widely available, cost nothing and almost instantaneous. Investment in current climate require clear and good understanding of Global knowledge. You must have the world in your pocket this time to survive. During the Grexit crisis ..many investors wrong footed by not understanding European political landscape. It would be naive for anyone in Europe to believe that Greece will fall out of EU or even Eurozone! I remember the day Citi group forecast 98% chance of Greece default and been bundled out of Eurozone. That was the day I went overweight Greece! 99% of Greeks fought and want to stay in Europe. It is not only based on economic considerations but importantly political. Many do not realize Greece/Turkey conflict still playing out today. Greece going out of EU will be a huge victory for Turkey. Also EU wont let Greece go..even USA! Greece dropping out EU will find natural abode in Russia. No one in Europe and even USA want this to happen. Forget about all the rhetoric.
    Right now the media and also many investors are actively discussing Japan talking about how to bet against BOJ. This is also one trade that is once in a generation. I wrote about it here http://leopardtrader.com/?page_id=1707 The rally in Japanese linked assets are just in its infancy.

    Again one must have the world in his pocket, look out of the window to make a realistic high probable bet. Trying to re-adjust investment views on daily/weekly volatility is pretty foolish. Investment must be to look out for where value and price are pretty wide apart. Value foretell price in time always. Always ask where is price of crude gonna be in the next 3~5 years. Example If you perceive that crude is likely to range from $60 ~$150 ..why not make a play on energy whenever crude price is about $70/80?. This assessment must not be based on “gut” feelings but on solid research.

    Keep it in your mind that every other month one big asset class makes its long term lows/highs. This shows opportunities are abound in this market so find it “nuts” to keep posting losses.

  8. Whammer says:

    Outstanding article, thanks!

  9. bonzo says:

    I’ve made over 200% since Oct 10, 2008 (more than tripled my money), when I first dove deeply in. Of course, I ended up having to pay taxes on a lot of that, since I had a bundle of long-term gains in my bond funds by Oct 10, 2008 and then much of the stock trading hit me with short-term capital gains. Plus I did an IRA->Roth conversion in there and that cost a bundle of taxes, plus I had to take some money out for spending and I also made some large gifts, so on a net basis I’ve only doubled my money. But still, this has been a golden age for buy-low, sell-high. I’m almost back to all cash (and thus almost no unrealized cap gains to worry about). That’s the key to trading: you have to be willing to sell at the top. If you don’t sell, you can’t buy. There’s going to be another big leg down in the broad-market indexes at some point. Just look at what happened to the gold miners. How many people would have predicted that a year ago? The fact that BR is writing like we’re past the crisis tells me everything I need to know–bears all dead, shorts all dead, no one left to buy when the selling starts.

    • This has nothing to do with the crisis, and everything to do with Human’s normal emotional states.

      How many people miss a 50% or 75% or even 100% move up becayuse their risk aversion has them fearing a 30% crash? Indeed, this advice is valid even if there is a 30% crash over the next 18 months.

  10. MayorQuimby says:

    Participating in equity markets is not mandatory and in fact – most of the people I know with big bucks never messed around with equities – they made their money in the real world and protected it. The entire thesis about stocks returning a certain % yoy over time is based upon today’s closing price. If we tank 30% that % drops for the past 100+ years instantly.

  11. Winchupuata says:

    Number 4 is particularly important