38 NEWSWEEK.COM
STOCKSOf course, it’s tough to think straight
when the world around you seems
fraught with peril and your health and
savings are at stake. “The average inves-
tor loses 13 percent of their cognitive
processing power during a period of
ɿnancial duress,” says psychologist
Daniel Crosby, chief behavioral ofɿcer
at Brinker Capital. “This is no time to
be making ɿnancial decisions without
your full complement of brainpower.”
To counter behavioral traps—like
making investment decisions during
times of ɿnancial duress—start with
a self-imposed ban on checking your
401(k) and other investment accounts;
removing the short-term damage
from your sight makes your dwin-
dling balances seem less vivid and
reduces the chances you’ll sell—and
turn paper losses into real ones.
If you do ɿnd your emotions getting
the better of you, and you’re tempted to
get out of the stock market completely
on the next big drop, that’s a sign your
investment mix is probably too volatile
for your temperament. The solution"
Avoid what DuQuesnay calls the all-in,
all-out mentality. “ 5 ather than selling
everything, sell a small portion of your
stock holdings,” she advises. “-ust
executing that trade will relieve a lot of
your anxiety because you’ll have been
proactive, and you’ll have a little less
money tied up in stocks to worry about.”in order to earn the bigger
returns that stocks offer, you have to
steel yourself to ride out the periods
when prices are slumping or, worse,
plummeting. No one, not even the
pros, can time buying and selling
with any degree of accuracy. “It is very
difficult to figure out the tops and
bottoms in financial markets,” says
Lebovitz. “Good days and bad days
tend to be clustered together, and
what we’ve experienced recently is a
classic example of that phenomenon.”
In other words, it wasn’t a fluke
that the best point gain of all time
for the Dow and its worst point loss
occurred within two trading days of
each other last month. That sort of
thing happens a lot. According to re-
search from J.P. Morgan, for example,
six of the 10 best days for stock prices
over the past 20 years occurred within
two weeks of the 10 worst days. Van-
guard research shows a similar jux-
taposition of good days in bad mar-
kets and bad days in good markets:
Thirteen of the 20 best trading days
occurred in years when stocks ended
up losing money, while nine of the 20
worst trading days happened in years
when the market finished with pos-
itive returns. That makes it tough to
figure out what the dominant trend is.
What’s most critical to know:
Missing even a few of those “best”
days can seriously damage your
savings over the long term. As the
graphic on Page 40 shows, if you
missed the 10 best days for stocks
over the 20 years ending in Decem-
ber 2019—and there were roughly
5,000 trading days during that pe-
riod—your gains would have been
cut in half. If you missed the best 20
days during that period, you’d have
barely broken even. Missing the best
30 days or more meant you actually
lost money.
The winning strategy, then, is to take
a truly hands-off approach and stick
with your stock holdings. Think of it
this way, Lebovitz says: “Your investment
portfolio is like a bar of soap. The more
you touch it, the smaller it will get.”