According to Lipper data, investors moved over $190 billion into money-market funds in the final quarter of 2018—the biggest dash to cash since 2008.
How many got back in to catch the best January rally in over 30 years?
Whipsaws are painful. And all too common in the stock market.
Another example: Apple issued a profit warning after the market close on January 2nd. Investors scampered to the sidelines the following day, which also marked the recent bottom. Adding insult to injury, Apple shares rallied 6.8% after lackluster earnings were later released on January 29th.
Apple stock chart.Bloomberg, Silverlight Asset Management
If you find investing to be frustrating at times, join the club. It certainly can be. The right moves often feel counter-intuitive.
Case in point: it was painful to buy Apple shares on 1/3/19. But also the right move, in the short-term at least.
No pain, no gain.
To be a successful active investor, you must learn how to control pain so it doesn’t control you. Discipline is critical.
You can practice building your pain tolerance in ways that don’t involve trading.
For instance, a ritual I recently adopted is jumping into my unheated pool first thing in the morning, when the water is around 55 degrees. It’s a shock to the system!
Cold-water plunges have certain health benefits, like reducing inflammation in your body.
The main benefit for me, though, involves mental conditioning. Just before I’m about to jump, part of my brain—the part author Daniel Kahneman calls System 1—screams: “Don’t do it, this is going to hurt!”
I force myself to jump anyway, because I know that learning how to consciously override the weak voice in my head builds mental discipline, which makes me better in many facets of life. Including my work as a professional investor, where I sometimes have to force myself to make moves that don’t feel good.
The painful trades often make the most money, particularly at critical turns.
It’s not supposed to be easy. Anyone who finds it easy is stupid.”
– Charlie Munger
Speaking of painful, how about active managers’ returns last year?
According to data from Morningstar and SPIVA, only 38% of U.S. equity funds beat their benchmarks in 2018, tying 2006 for the worst year of overall relative performance since 2000. The outperformance of defensive sectors in Q4 apparently caught many fund managers flat-footed.
Will this year be any easier? So many market narratives are shifting in early 2019, it’s hard to keep track.
One big change this week was the Federal Reserve pivoting to a more dovish interest rate policy. The video below (2-minutes) chronicles market moves accompanying that shift.