Stay in Your Lane

Thoughts On Money [TOM]

Sep 6 2023 • 28 mins

This week's blogpost -

Do you ever notice those habitual lane-changers in traffic?  There is a lot of activity going on, but they make little progress.  There doesn’t seem to be a correlation between how many times you switch lanes and a reduction in your drive time.  Often you will observe “lane change regret.”  The driver sees opportunity, so they get over, only to then realize that their former lane is now taking off.

Investors today are trying to change lanes in traffic, and they will inevitably experience lane change regret.  How do I know this? Because investors on average – myself included – are horrible at trying to time markets and what we are talking about is exactly that, market timing.

The peaks and troughs of markets are driven by extreme sentiment; peaking in irrational exuberance or greed and reaching a trough at levels of excessive fear.  Lane-changers aren’t enticed back into markets at the troughs, yet it is a fear that lures them back in, a fear of missing out (FOMO).  This FOMO, or point of capitulation, tends to come after a rise or rally in markets, which is often an expensive re-entry point.

Links mentioned in this episode: