Don't Act Out of Fear...
August 30, 2025
Not that long ago I was struck by a subtle change that a large investment management firm made in their advertising message to potential clients, highlighting a concern that is frequently overlooked - the risk of being too conservative. It is an error that is easily, and unfortunately, often made by investors.
Corroborating this idea, I recently heard from several clients who told me that they were worried about the market being overvalued, about the inevitable decline that would shortly be coming, about the recession that was on the way, even, they said, about the imminent, inevitable disastrous market crash. Shouldn’t we be selling, parking much more cash on the sidelines? Different clients require different kinds of responses but the essence of my response in each case was the same and simply summed up – just as trying to time market moves is a fool’s game, acting out of fear is not a useful investment strategy.
Last week, the market had been down 5 days running, sentiment was negative, explanations for why it would keep declining were being repeatedly expressed. Then on Friday, Fed Chair Powell indicated a change in policy regarding rates and the market boomed, its best day in months with the market averages closing at record highs. In fact, after the highly disconcerting market collapse caused by the surprise ‘Liberation Day’ announcements by Trump, the market averages have closed higher four months in a row.
Just like it can be a mistake to succumb to FOMO (fear of missing out) and upward momentum, it can be an even greater mistake to give in to fear and negative sentiment. The ten best stock market days over the last 50 years happened during, or just after, steep declines in the market averages. Research has shown that if you miss the 5 best market days in a year, your overall long-term returns will be reduced by as much as 50%. That’s a meaningful impact on your balance sheet. Manage your fears, don’t be controlled by them.
Finally, a bit of ‘wisdom’ to contemplate. Jesse Livermore was a legendarily successful investor a century ago. ‘Reminiscences of a Stock Operator’ by Edwin Lefevre is a book detailing his history that we were encouraged to read as Wall Street summer interns. Germane to our topic today was this bit of Livermore perspective: investors confound themselves through hope and fear…holding onto losing positions, hoping they will recover, even as they drop further, and selling profitable positions, fearing that the profits will be lost. Instead, jettison the losers, fearing further losses, and keep the winners, hoping that the profits will grow further.
The link below is another story of hope and fear…two Hollywood types not afraid of what they didn’t know, hoping that their best instincts would lead to success. Which is exactly what happened when Ryan Reynolds and Rob McElhenney took over a downtrodden UK soccer team and brought joy to an entire town. Some of you may be streaming the Wrexham story and this won’t be news. In any case, the link is to a well-written piece from Sports Illustrated about the entire well-strategized adventure.