{"id":8679,"date":"2013-10-27T20:44:41","date_gmt":"2013-10-28T00:44:41","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=8679"},"modified":"2013-10-27T20:44:41","modified_gmt":"2013-10-28T00:44:41","slug":"saving-investors-from-themselves-wsj","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2013\/10\/27\/saving-investors-from-themselves-wsj\/","title":{"rendered":"Saving Investors From Themselves | WSJ"},"content":{"rendered":"<p>Jason Zweig, in his 250th <em>Intelligent Investor<\/em> column for <em>The Wall Street Journal<\/em>, writes:<\/p>\n<blockquote>\n<p>From financial history and from my own experience, I long ago concluded that regression to the mean is the most powerful law in financial physics: Periods of above-average performance are inevitably followed by below-average returns, and bad times inevitably set the stage for surprisingly good performance&#8230;&#8230;.My role, therefore, is to bet on regression to the mean even as most investors, and financial journalists, are betting against it. I try to talk readers out of chasing whatever is hot and, instead, to think about investing in what is not hot. Instead of pandering to investors\u2019 own worst tendencies, I try to push back. My role is also to remind them constantly that knowing what not to do is much more important than what to do. Approximately 99% of the time, the single most important thing investors should do is absolutely nothing.<\/p>\n<\/blockquote>\n<p>While I agree with Jason that investors are often their own worst enemy, I would hesitate to advise anyone to invest in under-performing stocks (anticipating reversion to the mean) or to adopt a buy-and-hold strategy. Our research shows that investing in top-performing stocks (buying momentum) delivers significant outperformance over a buy-and-hold strategy in the long-term. <\/p>\n<p>The risk to momentum investing is not of reversion to the mean, but of significant draw-downs when there is a broad market down-turn. Most stocks fall in a bear market, but top-performing (momentum) stocks tend to fall further. Value stocks are also likely to fall during a market down-turn and the best defense is often to move to cash or counter-cyclical investments such as bonds.<\/p>\n<p>The difficulty is to identify these broad market swings with enough certainty to confidently switch your investment allocation. Common mistakes are to continually jump in and out of the market at the slightest hint of bad news, leading to expensive whipsaws, or to get caught up in the intoxicating sentiment of a bull market, blinding you to warning signs of a reversal.<\/p>\n<p>I believe investors should allocate half their time to deciding what stocks to buy\/sell and the other half to identifying when to be in\/out of the market. Too often I see them focusing on one half while neglecting the other &#8212; usually with disastrous consequences.<\/p>\n<p>Read more at <a href='http:\/\/blogs.wsj.com\/moneybeat\/2013\/06\/28\/the-intelligent-investor-saving-investors-from-themselves\/?goback=%2Egde_4641811_member_5799259161355116546#%21'>The Intelligent Investor: Saving Investors From Themselves &#8211; MoneyBeat &#8211; WSJ<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Jason Zweig, in his 250th Intelligent Investor column for The Wall Street Journal, writes: From financial history and from my own experience, I long ago concluded that regression to the mean is the most powerful law in financial physics: Periods of above-average performance are inevitably followed by below-average returns, and bad times inevitably set the &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2013\/10\/27\/saving-investors-from-themselves-wsj\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Saving Investors From Themselves | WSJ&#8221;<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[37,54,57],"tags":[539,2336,2898,2955],"class_list":["post-8679","post","type-post","status-publish","format-standard","hentry","category-active-investing","category-momentum-trades","category-stock-markets","tag-buy-and-hold","tag-momentum","tag-regression-to-the-mean","tag-reversion-to-the-mean"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Saving Investors From Themselves | WSJ - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Saving Investors From Themselves | WSJ - the patient investor\" \/>\n<meta property=\"og:description\" content=\"Jason Zweig, in his 250th Intelligent Investor column for The Wall Street Journal, writes: From financial history and from my own experience, I long ago concluded that regression to the mean is the most powerful law in financial physics: Periods of above-average performance are inevitably followed by below-average returns, and bad times inevitably set the &hellip; 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Investors unfortunately have to endure periods like this, when the market appears hesitant or lacks direction, in much the same the same way as travelers can expect turbulence during an air flight. It is\u2026","rel":"","context":"In &quot;Momentum Investing&quot;","block_context":{"text":"Momentum Investing","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/investing\/momentum-investing-2\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":12632,"url":"https:\/\/thepatientinvestor.com\/index.php\/2015\/11\/30\/the-trouble-with-chasing-hot-strategies-josh-brown\/","url_meta":{"origin":8679,"position":1},"title":"The Trouble With Chasing Hot Strategies | Josh Brown","author":"ColinTwiggs","date":"November 30, 2015","format":false,"excerpt":"This should be blindingly obvious, but amazing how often it is ignored. Great post from Josh Brown at Reformed Broker: How do most investors (and many advisors) select funds or strategies to allocate to? They look at what\u2019s been working, learn the story and get long....... And then mean reversion\u2026","rel":"","context":"In &quot;Active Investing&quot;","block_context":{"text":"Active Investing","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/investing\/active-investing\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":10239,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/07\/05\/understanding-momentum\/","url_meta":{"origin":8679,"position":2},"title":"Understanding Momentum","author":"ColinTwiggs","date":"July 5, 2014","format":false,"excerpt":"Understanding Momentum Since its initial discovery by DeBondt & Thaler in 1985, the momentum effect has been documented and researched in many markets worldwide. Stocks which have outperformed in the recent past tend to continue to perform strongly over the months ahead. Research conducted by Dr Bruce Vanstone and me\u2026","rel":"","context":"In &quot;Active Investing&quot;","block_context":{"text":"Active Investing","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/investing\/active-investing\/"},"img":{"alt_text":"S&P 500 TMO Equity Curve: click to enlarge","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/spx-tmo-equity.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/spx-tmo-equity.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/spx-tmo-equity.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":13851,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/07\/12\/growth-or-income-2\/","url_meta":{"origin":8679,"position":3},"title":"Growth or Income?","author":"ColinTwiggs","date":"July 12, 2014","format":false,"excerpt":"Most investors face a decision as to how much of their portfolio to allocate to growth investments and how much to income investments. The mind-set of many income investors is that they cannot afford the volatility of growth investments. The following example illustrates how income investors can use growth investments\u2026","rel":"","context":"In &quot;Momentum Investing&quot;","block_context":{"text":"Momentum Investing","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/investing\/momentum-investing-2\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":13849,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/07\/07\/understanding-momentum-2\/","url_meta":{"origin":8679,"position":4},"title":"Understanding Momentum","author":"ColinTwiggs","date":"July 7, 2014","format":false,"excerpt":"Since its initial discovery by DeBondt & Thaler in 1985, the momentum effect has been documented and researched in many markets worldwide. Stocks which have outperformed in the recent past tend to continue to perform strongly over the months ahead. Research conducted by Dr Bruce Vanstone and me indicates that\u2026","rel":"","context":"In &quot;Momentum Investing&quot;","block_context":{"text":"Momentum Investing","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/investing\/momentum-investing-2\/"},"img":{"alt_text":"S&P 500 TMO Equity Curve: click to enlarge","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/spx-tmo-equity.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/spx-tmo-equity.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/spx-tmo-equity.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":10271,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/07\/11\/growth-or-income\/","url_meta":{"origin":8679,"position":5},"title":"Growth or income?","author":"ColinTwiggs","date":"July 11, 2014","format":false,"excerpt":"Most investors face a decision as to how much of their portfolio to allocate to growth investments and how much to income investments. 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