Staying the Course vs Timing the Market

– As the old saying goes, time in the market is generally superior to timing the market. Yet, investors tend to have a bad habit of buying winners too late and dumping losers too soon.

-Staying the course does not necessarily mean sitting still. It means avoiding bad behaviour, remembering your goals and ensuring you approach markets with discipline.

From trade wars to Brexit, North Korean tensions to Italian political turmoil, we’ve had plenty of noise to deal with. So, what do we mean by “staying the course”? It is not always about sitting still (even though this is often the easiest path to investing success), but rather, to focus on the goals that you set in the first place and ensure your behaviour aligns with them.

Therefore, it is vital that as investors we remain vigilantly aware of how animal spirits can drive irrational decision-making, and that we adopt a reasoned framework for investing. Behavioural errors can wreak havoc on long-term portfolio returns due to excessive and unjustified turnover.

A Step-by-Step Guide to Staying the Course

The best thing an investor can do when contemplating change is to reflect on their goals. Would the investment change align with the original investment plan or strategy for reaching well-defined goals? The key question to ask is whether anything has fundamentally changed since setting the original strategy or whether it’s just that the client is disappointed with the progress towards goals.

If something has fundamentally changed, the next question to ask is whether you can clearly identify what has changed. Write it down, then balance this by writing what it might mean if you’re wrong. This should include any misjudgment risk as well as the added costs if you decided to change investments.

You will often find that the change you desire is not necessarily going to increase the probability of reaching your goal/s. If it has “just” disappointed you, but nothing has fundamentally changed, the likely best option is to stay the course. By thinking probabilistically and remembering that investment markets never move in straight lines, you may avoid the perils of trying to time the market.

Furthermore, you may benefit by doing the opposite to your intuition (given the evidence against it) and teach yourself to be a contrarian.

How We Think about Staying the Course

As professional, multi-asset investors, we focus on the investment objective, always bearing in mind the opportunity costs and risks. We also write down a balanced thesis that ensures we remove any emotion rom our decision-making.

In this sense, staying the course is not idle or passive, but rather about staying aware.

Staying the Course vs. Timing the Market

Investing, like many things, often involves taking the thorns with the roses. Over dozens of years and through all investment literature there is one golden thread–the evidence clearly favours time in the market over timing the market.

1‘A Stay of Execution’ by Stewart Alsop (1973)

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