Which is the right time to invest? Nobody knows. Yet, decades of Hollywood movies and the myth of “playing the stock market” may lead us to think that anticipating market trends and trading on gut feeling is what it takes for an investor to be successful. We could not be any more wrong. Reality is different, and professional investors, asset and investment managers know well that time – not timing – is what pays off in the long-term.
Instead of trying in vain to forecast the future, investors that stay invested and build time in the market benefit from executing their long-term plan with discipline. Especially when markets become turbulent, we see sticking to this approach as fundamental: only acting out of a rational, scientific and thought-out process can manage emotions, volatility and drawdowns and ride the markets when they get rocky — running a marathon, not a sprint.
Making bad decisions because of gut-feelings is not something that happens only when we talk about investments. There is a vast literature – from psychology to behavioural finance – that has investigated how our decision-making mechanisms become temporarily blurred when we experience intense feelings, such as euphoria or stress.
On top of that, the interaction with other people also tends to influence our judgments and our ability to see clearly what is going on. Ironically, it is exactly when we need it more, that our instincts fail and our emotions lay us a trap.