Many investors like to think of themselves as pretty good market timers, able to consistently buy low and sell high. Some may get lucky from time to time, but those rare successes can lead to delusional over-confidence – “I saw that crash coming!” – along with some form of Dunning-Kruger metacognitive failure. Add to that a dollop of selective retention as to one’s past successes and you end up with a recipe for false belief in one’s ability to jump in and out of markets at the right times.
Those of you who fantasize about being able to sidestep the downturns but still participate in the recoveries should ask yourself these simple questions: 1) What repeatable, not chance-based process would have had you selling equities in late February near the highs? 2) What process would you have followed to buy back in after the 34% collapse? 3) Would you have had the discipline to ignore your instincts to make a timely repurchase near the March 23rd lows? Both ends of that trade are hard to time, emotionally challenging to execute and more costly than many people realize.