When Things Clear Up

With the S&P 500 up over 25% from the recent lows in March, I am starting to hear people say things like:

“I am thinking about getting back in now that things have cleared up.”

In fact, earlier this week I heard an interview on NPR with a recently retired couple that sold in March because they wanted to “sit on the sidelines until things clear up,” and now, they are thinking about getting back in, because things have apparently “cleared up.”

Over the years, I have watched this scenario play out countless times:

The markets go down. We get scared and want to get rid of the thing that is causing us pain. We want to sell. We just want to sit in cash for a while.

On the surface, this seems like a reasonable plan. Sell, then sit in cash until things clear up.

But unless you are making a permanent decision that stocks are not for you, you are planning to get back in. In fact, you are planning to get back in “when things clear up.” So before you sell it might be a good idea to define what it means for “things to clear up.”

If you feel like selling today, chances are you are scared. You feel bad. Your neighbor feels bad. The media says you should feel bad. That is why you want to sell.

So here is the big question? If you want to sell when the market is down because you feel bad, when are you going to feel like buying back in?

What is the world going to look like when we reach this magical point where things have cleared up?

For things to qualify as “cleared up,” it is safe to say that the media will be back to being happy. Your neighbor will be happy again. You will feel better, and THE MARKET WILL BE UP 20-30% from where you SOLD.

So follow me through this:

Market down, feel bad, want to sell.

Plan on getting back in.

Things clear up. I am feeling better. Want to buy back in. Market is UP!

That is a PLAN to sell low and BUY high.

There might be good reasons to sell (even with the market down), but this is not one of them!

To take it one step further, what if you buy back in (20 – 30% higher than you sold) and the light you saw at the end of the tunnel turns out to be a train?

Then what?

Over 20K Subscribers Love the Behavior Gap Newsletter

With a +30% open rate, you know it's gotta be good.

Get the best of Behavior Gap delivered straight to your inbox.