Originally posted on korvingco:
Mark Mobius is the executive chairman of Templeton Emerging Markets Group. He recounts that day he attended a conference in Canada with the late John Templeton. He was asked by a young lady in the audience: “I’ve just inherited some money from my grandfather. When is the best time for me to invest it?” Templeton replied: ”Young lady, the best time to invest is when you have money.” Why is this a good answer? Because nobody rings a bell when there is a buying opportunity. In fact, the opposite is usually the case.
Investing during a bear market is easier said than done, and I readily admit it’s psychologically a very difficult thing to do. It requires you to look beyond the immediate bad news and toward a potential future recovery. If all your friends and neighbors are giving up on their stock market investments, it’s very easy to be swayed to do the same. In the realm of behavioral economics this is called “herding.”
If the newspapers are reporting how dire the market is and how it will get worse, you can also become subject to what we call the “whipsaw” effect – buying and selling at the wrong times. This is what happened when many sold in a panic at the bottom of the market during the US subprime crisis in late 2008 and early 2009. Then, after the market moved up by over 50%, many decided that they were missing the boat and had to get into the market, buying at the market top! If you are engaging in this type of behavior, you are almost certain to lose money. Without a long-term view you just aren’t likely to be able to have the discipline to continue investing in a bear market and wait for the potential upturn.
What is one of the other “secrets” to investing success?