Christine Benz of Morningstar often has very good advice and her offering today, I think, falls into that category. She has some generalities about making sure that your cash reserves and asset allocation are appropriate, but what she says in the article about taking advantage of scary markets is very worthwhile. A couple of excerpts:
One of my favorite investment sayings is attributed to value investing legend Shelby Cullom Davis: “You make your money during bear markets; you just don’t know it at the time.”
Davis’ point, much like Warren Buffett’s oft-quoted “be greedy when others are fearful” advice, is that opportunistic contrarians can set their portfolios up for great returns by buying when and what others are selling. Unfortunately, many investors also lose their money during weak markets. They panic-sell and upend what had seemed like sensible investment plans when cooler heads prevailed. Then, when the market inevitably begins to ascend again, they’re left with that nagging question: Is now the time to get back in? I’m still getting emails from people who moved to cash during the last downturn.
Now, back to the Shelby Cullom Davis quote that I used to kick off the article: The best way to make money is to be willing to invest when others are afraid to do so.
This really speaks to a point that we have made many times in the past as well: let volatility work in your favor by using downturns to add to your portfolio. Good investor behavior can have a large positive impact on results, just as bad investor behavior can really kill returns.
You can read the whole article here. Recommended.
Source: Reperiendi
So you do believe in EMH after all! Great news!
I wouldn’t be so sure. If the market were efficient, it wouldn’t be possible to outperform by buying dips. At least that’s what an EMH advocate would tell you!