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The Psychology of Long-term Investing

June 1, 2019 | Commentary

  • The tone of conversations around the equity market have changed from despair after Q4 2018 to a more constructive tone after the first four months of 2019.  Concerns about trade, Brexit and a litany of geopolitical events create uncertainty, but the U.S. economy and profits continue to grow supporting long-term stock investments.
  • Swings in sentiment naturally lead to questions about when to buy and sell.  Short-term traders try to exploit these ups and downs.  Most do it badly.  True long-term investors largely ignore these swings.  They have an investment plan and stick to it, minimizing emotional decisions as they acquire and, most importantly, hold onto their stocks.  Missing even a handful of the unpredictable strong trading days can have a permanent major impact on returns.
  • Some people believe there are mathematically optimal ways to manage a long-term equity portfolio, but they may be difficult to put into practice.  Averaging into positions over weeks or months is an example of suboptimal behavior, but it has the advantage of avoiding potential disappointment from buying everything right before a major correction. Such behaviors help preserve our sanity along volatile paths while doing little damage to ultimate returns, aiding our goal to be long-term investors.

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