It’s OK to be wrong; it’s not OK to stay wrong!
by amber on Feb 14, 2019
This is one of the best pieces of investment advice I have ever received. Inevitably, an investment decision is not going to work out. We can do all of the research and analysis and sometimes an investment will turn against us after we have made the buy decision. That happens. What you do after that is what really counts. Many of us hope and pray that it will come back and we can “get even”. But what if it doesn’t? I have seen this happen with investors too many times. A small loss becomes a big loss because the investor “stayed wrong”.
Let’s look at a classic example. In the late 90’s Worldcom was trading in the $50 per share range. About a year later it was trading in the mid 30’s. Many investors that bought Worldcom in the $50 range were likely waiting for it to go back to that price to “get even”. But analyzing stocks pattern, it appeared that there was further downside risk. The problem for most investors is that they were focused on the approximate $15 per share loss instead of focusing on the $35 per share value they still had. Eventually the company went bankrupt.
This lesson can be applied to 401k accounts. Are you staying in stock mutual funds when you should not be in the market? Are you staying in a stock mutual fund that is under performing? Do you know what the best performing asset classes were in the 4th quarter of 2018? For most 401k company sponsored plans it was cash and bonds.
If you should be in the market, do you know where and what types of funds you should own? Different investment class fall in and out of favor. For example, small cap growth handily outperformed the large cap S&P 500 through the first three quarters of the year. Not so after September 30, 2018!
Independent 3rd party research can help guide you toward the better asset classes. Don’t stay wrong!