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

Tax Wrinkles for Work-at-Home Employees During COVID-19
taxes

Tax Wrinkles for Work-at-Home Employees During COVID-19

Are your home office expenses deductible? How does going out of state to work for a while affect your tax picture? There are some interesting wrinkles…
November 9, 2020
Retirement: It All Starts with a Budget
personal finance

Retirement: It All Starts with a Budget

When you’re meeting with your financial planner, do you talk about your budget? If not, you should.
November 10, 2020
Will Joe Biden Raise YOUR Taxes?
taxes

Will Joe Biden Raise YOUR Taxes?

During the campaign, Joe Biden promised that he would raise taxes for some people. Will you be one of them?
November 10, 2020

Recommended

Bonds: 10 Things You Need to Know
Investing for Income

Bonds: 10 Things You Need to Know

Bonds can be more complex than stocks, but it's not hard to become a knowledgeable fixed-income investor.
July 22, 2020
Is the Stock Market Open on Thanksgiving and Black Friday 2020?
Markets

Is the Stock Market Open on Thanksgiving and Black Friday 2020?

The stock market will take a pause on Thanksgiving, but investors will need to pay attention for a few hours on Black Friday.
November 25, 2020
Peering Past the Pandemic
Travel

Peering Past the Pandemic

I’m looking forward to a time when lunches with the girls (or guys), volunteering and travel will resume.
November 24, 2020
Build a Bond Ladder
Financial Planning

Build a Bond Ladder

Exchange-traded funds give a new twist to an old technique to navigate a tricky market and manage cash flow.
November 23, 2020