Breakevenitis: Avoid This Common Investor Affliction

Transcript

Ken Fisher:

So, today I'd like to speak to you about a disease that often is infectious, and I don't usually talk about infectious disease, but, this one really is one that mostly only impacts investors, and it impacts investors at a time like this. Depending on where you are in this wonderful world of ours. You have either a market that's just hit new all-time highs if you're outside of America in most countries. Or, if you're inside America, one that's just trying to get back to the peaks that were hit in the American stock market on February 18th. And in that, when that happens, you always have phenomena that works kind of like this.

People see the downturn. There's always a scary story with the correction that we had from peak of the market to the trough, regardless of what country you were in, and that scares people, the story of what's going on wrong and why it is that stocks were falling and should be falling, whether it's true or not, scares people. And then correction, of course, those stories are either false or they're way overdone. That's what makes the correction— big scary stories that are either false or way overdone.

So, as the market goes down, people get more and more fearful. And then as the market bounces back up, because people hate losses more than they love gains, it doesn't feel like the fear should have fully gone away. And people that held on that whole time, for when we get back, Say, 'boy, you know, if I get back to where I was, I can get out whole and I didn't lose anything. I got to hold on until I didn't lose anything'. And then, when you get back to where they're whole, or approximately whole, or a little more than whole, they sell out.

Some people, instead of holding on, bail out in the downturn and they don't like that the market's been going back up because it proves them wrong, and they hate that. People don't like being proven wrong, so they don't want to get back in for fear that they're going to get another downturn, and that'll be their opportunity to get in. Other people get out because they now didn't actually lose anything, they can be whole.

Problem with that is that almost every correction— not every correction—sometimes you get a bear market, but if you get to new highs, it is almost never true that bull market peak leads to correction that goes back to bull market peak and immediately reverses and goes into a bear market. Instead, when you get to that pattern, you move on to new highs. And people that get out looking for an all-clear signal later invariably miss the big gains of the subsequent bull market. If we do as I would have you do— always look globally first, think locally second— you'd recognize that, globally, We're at an all-time high.

Globally, we had a correction and the bull market has continued— led by foreign stocks, not led by America. More true if you're looking in dollars than in foreign currency, but true. And in that, this thing—which is the holding on so that I can get out and not have lost anything, not lost money so my wife's mad at me, or whatever it is— is often, and I coined this phrase 40 years ago, "Breakevenitis," and Breakevenitis is a disease that affects people, and there's a simple cure for it.

The cure for Breakevenitis is every time you get a correction and you're tempted to get out, remember and go back and study. Give yourself a good 30-minute treatment— and the 30-minute treatment is, look at the history of the returns A, after corrections, and B, after bear markets. And no matter which you're in, when you look at the periods ahead, the returns are bigger than any risk you could possibly have.

The correction took risk away from you. A bear market took even more risk away from you because the aftermath of all of those are huge. So, I'm telling you this because I know, and I can see from questions I get, people I talk to casually in business, in every other way, that the temptation toward Breakevenitis is on the rise. Don't let this disease impact you. Take the 30-minute treatment if you have some urgent feel that says, I got to get out because I've been losing money and I'm afraid now that I can break even, or I'm close to breaking even, that I should take that and run. If you do that, you will impair yourself.

Voice of Ken Fisher:

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