investing

Avoid the Buy-High, Sell-Low Trap

The stock market's volatility is whipping up problems for panicky investors who get cowed into following the herd.

When an investment legend who has seen 50% single-day declines twice in his career says he’s never seen volatility like he’s currently seeing, it means the market is in the midst of a once-in-a-lifetime wild ride. Despite the yo-yoing stock market, Jack Bogle, the founder of Vanguard, whose career spans 66 years, doesn’t think that long-term investors have anything to worry about.

Most seasoned investors agree. But many less-experienced investors aren’t as confident, and it shows. They are panicking with every new news cycle that claims an impending trade war with China is devastating the market and sending the Dow Jones into triple-digit declines, or cheering the news that China’s easing on trade war talks is sending the Dow Jones up by triple digits.

Volatility’s Causes and Effects

The causes of the roller coaster volatility include a variety of concerns: President Trump’s tweets, the Federal Reserve’s plans to continue raising interest rates, inflation, that possible trade war with China and more. If that wasn’t enough, the market is experiencing an unusually long bull run. As the Dow Jones hovers around 24,000, it’s hard to imagine that nearly nine years ago it dropped to a low of 6,443.27. Financial advisers and professionals believe stock prices are on the high end.

Anxious investors during times like these experience two kinds of volatility:

  • Upside volatility is when the investor sees the market rising and rising and wonders if they are missing out. When the Dow Jones shoots up 300 points in a single day, it’s natural to think that it’s time to get in, causing many to invest. They believe that if they don’t, they are missing out on prime buying opportunities. But they are generally buying when they shouldn’t.
  • Downside volatility is the opposite. The Dow opens 200 points lower than the previous close and only seems to descend from there. People begin to think they should sell while there’s still stock left to actually get rid of, and so they deviate from their plan.

After two years of rising stocks markets, when it seemed each new week brought a new index high, the market is shifting like never before. Emotions take over. Buy-high, sell-low becomes the unintended consequence.

It’s Not Market Timing, It’s Time in the Market

For the investors eyeing their savings and stocks and wondering what move to make to prevent a devastating loss, the best bet is to stay the course on the path set forth by you and your financial planner. In the long run, stocks rise. Remember, the news outlets make money when you watch their programs and click on their articles. That’s why you have to wait until the 11 o’clock news to see what in your kitchen might kill you, or to learn if the latest stock drop is the start of a major downturn.

The best thing an investor can do is tune it out: Don’t watch the news. This type of volatility causes irrationality, so it’s best to not pay attention to it. Investors should be putting blinders on and not buying into the talking heads on TV. Corrections, even in volatile times, are a natural part of the market fluctuation, and rarely do they turn into a bear market; in fact, 80% of corrections will rebound without becoming a bear.

Over time, the market generally moves up overall. Regardless of these volatile times, getting reassurance from your trusted financial adviser and sticking with your pre-determined course of action may be the best option available.

This article is for informational purposes only. It is not intended as investment or tax advice and does not address or account for individual investor/taxpayer circumstances. Please click here for important additional disclosures.

About the Author

Gary Ran, Investment Adviser

Chairman, Telemus

A founding Partner of Telemus, Gary Ran serves as the firm's chairman. In this role, he is responsible for the overall strategic direction of Telemus in addition to managing key member relationships and serving on the firm's investment committee. Prior to forming Telemus in 2005, Ran served as a first vice president of investments at Merrill Lynch and as senior vice president of investments at UBS Financial Services. During his career of more than 20 years as a retail stockbroker, he built one of the largest brokerage practices in the industry. He has been repeatedly selected as one of "America's Top 100 Advisors" and "America's Top Independent Advisors" by Barron's magazine and is frequently quoted in numerous industry publications.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 12 Best Tech Stocks to Buy for 2022
tech stocks

The 12 Best Tech Stocks to Buy for 2022

The best tech-sector picks for the year to come include plays on some of the most exciting emergent technologies, as well as several old-guard mega-ca…
January 3, 2022
How to Know When You Can Retire
retirement

How to Know When You Can Retire

You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually …
January 5, 2022

Recommended

Why Women Need to Take a More Active Role in Their Financial Futures
Women & Money

Why Women Need to Take a More Active Role in Their Financial Futures

It’s a mistake to let someone else make all your decisions or take care of everything for you. You can start taking control of your finances by review…
January 17, 2022
Is the Stock Market Closed on MLK Day?
Markets

Is the Stock Market Closed on MLK Day?

Both the stock markets and bond markets will have Monday off as the nation honors civil rights leader Martin Luther King Jr.
January 15, 2022
Stock Market Holidays in 2022
Markets

Stock Market Holidays in 2022

Is the stock market open today? Take a look at which days the NYSE, Nasdaq and bond markets take off in 2022.
January 14, 2022
6 New Year’s Resolutions for Your Wealth Plan
retirement planning

6 New Year’s Resolutions for Your Wealth Plan

Everyone could benefit from checking these six items off their to-do list this year.
January 14, 2022