The 2 Other Ironies of Investing

Amar Pandit , CFA , CFP

The headline may sound a little odd for now, but it will all make sense as you progress through this post.

Take a look at the insightful visual below. Digest it for a few whole minutes (this is the reason I have kept this post short) and more importantly, reflect on it.

Have you ever experienced any of the above emotions?

Chances are you have at least one or more of them. At some point of time. Everyone has.

Because we are all human.

Though it’s alright to experience these emotions, acting on them is the most expensive mistake in investing. I know there are other mistakes such as borrowing to invest, betting everything on that one promising thing and so on, but this one takes the cake.

The ultimate irony is – many keep waiting for the right time to buybut at the same time it never seems like a good time to buy.

Guess what the other irony is. While it never seems like a good time to buy it always is a good time to buy.

Even if the markets went down for the next several months, we know the following truths.

1.The decline will always be temporary. We experienced this truth firsthand in 2020 and many a times before.

2.The 20 best days or the 50 best days will always be during the worst times. If we are not invested then (during the worst times), we will certainly miss the best 20 days.

3.Once the decline is over, the next upward trend will resume at some point of time. We just don’t know when, but it will.

4.When the upward move resumes, no one is going to ring a bell and tell us to get in because the pain is over now. Because the pain is never over. There will always be something wrong in some part of the world. There will always be reasons not to invest.

5.Despite everything that happens in the stock market, the next 1000% move of the stock market will ONLY be upwards (We just don’t know by when, but it will). The next 300% too WILL be upwards. Even the next 100% move WILL be upwards. Well we don’t know where the next 30% will be (Downwards or Upwards). But are we investing for the next 30% or the next 300%? And hasn’t history already proven the fact that a decline will be temporary (which is the first point anyway).

Now that you know the 2 other ironies of investing, are you wondering if there was any other irony? Indeed, there is, and I had shared this in a post a while ago. Here it goes.

Morgan Housel (Author of The Psychology of Money) wrote, “Remember the ultimate market irony: All past market declines look like opportunities; all future (and current) market declines look like risks.