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Don’t Fall for the Trading Game

Published on April 29, 2021
Last year’s market roller coaster ended with a rapid and dramatic surge upward followed by amplified short-term volatility. Understandably, these conditions have left investors wondering what to do now and many are tempted to take profits, pull out of the market, or wait on the sidelines.

Most investment decisions based on short-term timing, including moving a portfolio to cash, are speculative in nature. However, for long-term investors where the goal is growth, staying fully invested is often the right course of action. While less reliable over days or months, simply staying invested in stocks over a few years dramatically improves the likelihood of a successful outcome.


Performance used to calculate frequency of positive returns includes reinvestment of dividends and are compounded by geometrically linking monthly returns.
Source: Fama-French Market Return Series, January 1, 1927 – December 31, 2020

The graphic above highlights the percentage of time that stock market returns are positive for a range of rolling investment periods from 1927 through 2020. As you can see, the longer the holding period, the more likely it is to be positive. There are no holding periods longer than 15 years that result in a negative stock market return.

Trying to react and profit from short-term conditions are the hallmarks of traders and speculators. Getting in and out of the market often leads to significant underperformance because it requires impeccable timing on both exit and reentry decisions. It also requires the emotional fortitude to sell when everything seems fine and buy when the markets are in turmoil. These behaviors are not only at odds with our nature, but they are also at odds with what it takes to be a successful investor, namely patience and discipline.

For long-term investors, the most likely way to succeed is to invest based on probabilities while driving emotion and speculation out of the equation. Investors think in terms of years and decades, not days or months. Simply staying invested through all kinds of market conditions often delivers the best results.

From the Behavioral Viewpoint

What is Going On?

  1. The pandemic, politics, and the current social environment have roiled the markets and activated our fight-or-flight instincts. When we are primed to act, our loss aversion puts us on the lookout for potential threats.

  2. We are prone to recency and availability bias, where recent events carry more weight than they deserve. Recent and extreme events in either direction can easily lead to overreaction.

  3. Overconfidence and fallacy of control lead us to believe that we can comprehend and predict random market gyrations and make reliable short-term investment decisions. This is incredibly difficult and can be very costly.

What can we do?

  1. Develop a needs-based plan that separates short-term and long-term investments and stay fully invested over time.

  2. Build a strategy-diverse equity portfolio that can be resilient in a variety of market conditions and is designed for the long-run.

  3. Have a disciplined, data-driven, and rules-based investment process designed to drive out emotional decisions.

  4. Work with a skilled advisor who can help you avoid detrimental short-term decisions that can impact your long-term success.

Get Behavioral Investing Insights

Behavioral Viewpoints feature new topics each month which are intended to help advisors and investors gain a deeper understanding of how behavior shapes the investing landscape.


The information provided here is for general informational purposes only and should not be considered an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  It should not be assumed that recommendations of AthenaInvest made herein or in the future will be profitable or will equal the past performance records of any AthenaInvest investment strategy or product.  There can be no assurance that future recommendations will achieve comparable results.  The author’s opinions may change, without notice, in reaction to shifting economic, market, business, and other conditions.  AthenaInvest disclaims any responsibility to update such views.  These views may not be relied upon as investment advice or as an indication of trading intent on behalf of any AthenaInvest representative.

You are solely responsible for determining whether any investment, investment strategy, security, or related transaction is appropriate for you based on your personal investment objectives and financial circumstances.  You should consult with a qualified financial adviser, legal or tax professional regarding your specific situation.  Investments involve risk and unless otherwise stated, are not guaranteed. Past performance is not indicative of future performance.