As with the beginning of every new year, articles always circulate mentioning the consequences of having been fully invested throughout the previous year, or not, and/or having actively traded throughout the previous year, or not. The consequences being, having one’s personal trading and investing results coming out ahead of the gains earned if having been fully invested in the S&P 500 Index, or coming out below those potential results.
Many of us get “spooked” out of the market, myself included many times in the past, causing us to stay on the sidelines. I think that typically, drastic market conditions such as the 2008-2009 crash ending on March 9, 2009, or drastic individual trading losses cause us to move to the sidelines out of being overly cautious.
This can be good at times, but, at times it can be a poor decision. It’s true that losses can be avoided if not “in the game” trading or investing, but neither can profits be earned.
Staying on the sidelines for several weeks after the 2008-2009 market crash could have easily turned into months and even years of being on the sidelines. I still hear and read about people staying out of the market years later. Those same people always seem to mention negative points about the market, economy and politics.
During the same time period, the stock market has produced tremendous positive results, +32.31% in 2013 for the S&P 500, reaching new record highs.
While I do feel that staying on the sidelines can be beneficial, and even necessary, at times, in most cases I have found that getting back trading and investing as soon as possible, has produced the best outcomes over the long term for myself. At the same time I have to confess that I am guilty of staying on the sidelines for too long, many times in the past.
In fact, I am writing this article as a sort of reminder of this “fault” I consider myself to have, as I have recently decided to open a new position in a particular stock, waiting for a pullback, and found myself watching it rise for the last 5 trading days instead of opening a position. This particular potential trade will be the subject of my next article, coming soon…