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This is the podcast Spotlight Hour

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on Bloomberg Radio.

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There are countless factors that

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distract investors from their best laid

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plans. Markets go up and

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down, bad news comes

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out, companies miss earnings estimates,

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Economic data disappoints, to

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say nothing of the endless parade

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of geopolitical events. It's

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not too hard to see why staying

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the course can be a challenge

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for investors.

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We'll stay.

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As it turns out, there are strategies

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that long term investors can use to

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avoid the pitfalls. I'm Barry

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Riddhelts, and on today's edition of At

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the Money, we're going to discuss how

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to stay the course over the

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long run.

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To help us unpack all of this and what.

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It means for your portfolio, let's

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bring in Larry Suedrow, head of financial

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and ECONO research at Buckingham

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Strategic Wealth. The firm manages

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or advisors on over seventy billion

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dollars in client assets, and

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Larry has written or co written

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twenty books on investing. So

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Larry, let's start with a simple question.

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Investing is supposed to be

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for the long term. How hard can

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that be?

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Investing is actually very

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simple, but that doesn't mean

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it's easy. And the difference

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is that markets go through

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tremendous gyrations much more

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frequently than people think.

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On average, we get one month a year

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that could go down ten percent. We've

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had six big recessions in

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the last forty years and major

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bear markets during those periods. When

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you get those big drops, investors

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tend to panic, They engage in

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recency bias, think this

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will continue forever. To get

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that, governments take actions to count

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to the problems, and they panic and

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sell, and the evidence shows that

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results in them underperforming

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the very funds that they invest in.

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And then the reverse is true. In bull markets,

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they get over enthusiastic FOMO

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takes over and then they buy high

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and then expected returns along

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he is, have a plan, stick with it

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and do nothing.

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Be a rip Van Winkle investor, just

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rebalanced.

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So let's get into the specifics.

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What sorts of issues do you see

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that getting the way of investors

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staying the course? What are the big

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distractions that take them

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off of their plan.

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First thing I would say is recency bias

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is a huge problem. Investors

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tend to project what's happened in the recent

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past and definitely into

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the future. So for example,

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today AI is hot, so they

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think AI will be hot forever, and

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prior it might have been

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biotechnology or

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dot coms, and that leads

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to them to react. The second

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mistake is that they

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fail to understand that when it comes

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to investing, five

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years is not a long time

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and ten years isn't even a long

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time, but they think three years

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is a long time, five years

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is very long, in ten years

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infinite. And the problem is

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that you could go through almost every asset

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goes through at least ten years of

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poor performance, and when you get

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even three years, they panic and

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sell, where Warren Buffett would be.

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Telling you to be that sur buyer.

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One quick example, three periods

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of at least thirteen years with the

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S and P underperformed T bills

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twenty nine to forty three, sixty

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six to eighty two, that's seventeen

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years, and then twenty two

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thousand to twenty and twelve

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even a forty year period where

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small cap and large cap growth stocks

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underperformed twenty year treasuries.

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The riskless investment for a

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long term pension plan.

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What about market crashes?

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Shouldn't investors get out of the way

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before the market crashes and then

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jump back in after it's done.

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Yeah, certainly if you could predict

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that. The problem is there are

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no good predictors. One

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of the great anomalies. I even wrote a book

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about this, Think, Act and invest

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like Warren Buffett is. Buffet is

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idolized that people tend to do not

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only ignore his advice, they

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tend to do the opposite.

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Buffett says, never try to time

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the market. But if you're going to

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do so, be a.

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Buyer when everyone else is panicking,

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and then be a seller when everyone else

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is being greedy. A great example,

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Barry in recent times

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was much of two thousand and

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twenty recession.

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If you had a perfect crystal ball.

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We went into recession in the second and

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third quarters, and the market

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bottom down well before that

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happened, and the rest of the year the stocks

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returned, of my memory, served something

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like fifty percent or something like that

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in those next nine months, from the middle

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of March when at bottomed do owt to the

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end of the year. That's a great

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example of why you don't panic. People

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forget that. Governments don't sit there

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do nothing. Central banks come in,

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cut interest rates, government enact

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fiscal policies that try to get

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out of the recession.

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I've seen some data that suggests you

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just have to miss the worst couple of days

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and your performance improves

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dramatically. What's wrong with that

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line of thinking.

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The odds of your identifying those

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days are close to zero.

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That's what's wrong with that. And

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of course the other side is also

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true.

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A huge part of the returns happen

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over very short periods, and

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yet it's virtually impossible predicted.

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Again, here's an anomaly. Both

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Peter Lynch and Warren Buffett, maybe

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the two greatest investors of

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all time, to investors

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you should never try to time the market,

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and neither one of them has ever met anyone

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who has made a fortune by

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trying to time the market.

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And I've also seen some data that

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suggests that those best days in those

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worst days come clumped very close

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together. So if you're fortunate enough

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to miss the worst day, the odds are you going

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to miss the best day also.

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Now that's because again governments take

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action, come in and try to counter it,

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and then you know, everyone who was panicked

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and sold now has to you know, unwind

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those positions, and the shorts

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have to come in and cover as the market

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starts to recover.

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So forget crashes, nobody's really going

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to time those wells. But what about recessions?

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What should investors do when a recession

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is on the horizon and coming your

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way.

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Anyone who's read my books and my

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blogs I've written something like seven thousand

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now knows

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that I try to tell people that

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you should make decisions based on empirical

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evidence, not opinions like you hear

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on CNBC or

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a Bloomberg or whatever from some guru.

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And the evidence is pretty clear. Barry,

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I think this might even shock most people.

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We've had six recessions since nineteen

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eighty. The market has bottomed

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out before the recession

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was declared.

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Four of the six times.

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So even if you could predict when it would happen,

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just like in twenty twenty,

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would have done you no good. You would have predicted

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recession, got it out, and the market

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took off.

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So let's talk about performance. I know

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you crunch a lot of numbers, and in the books

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of yours that I've read, I always see a lot

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of data. The people who just

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buy and hold and put it away for twenty years,

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how well does their performance compare

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to those people who were either trying

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to avoid a crash or trying to avoid

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a recession.

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What does the numbers say?

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The research does show that the

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more people act, the worse

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their returns are.

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The more they trade, their.

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Worse their returns are as they

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drive expenses number one, and

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they pay more taxes.

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That data is very clear.

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Good studies by Terrence Odein

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and Brad Barber, for example, have

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looked at that. In morning Star runs data

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showing persistently that

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the investors earn lower returns

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and the very funds they invest in,

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which means that they had simply done nothing.

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They would have done better, but they'd done

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even better than that if they rebalance,

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which would cause them to sell high

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and buy LUW, not the reverse, which

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is what they tend to do.

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Just do something. Sit there is the best advice

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for those.

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Two things you want to do. You

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don't want to try to pick stocks at time the

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market. You want to stick to your plan

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and that means you have to act by

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rebalancing.

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And the other thing.

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You want to do is tax loss harvest

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to get Uncle Sam to share in

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your losses when they do occur, and

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they certainly will occur.

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So let's talk a little bit about fear, and greed.

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All of these things we're discussing often

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cause investors to become emotional

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or fearful. What do you do when you have

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a client who calls up and says, Hey,

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I'm not sleeping at night, I'm stressing over

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the market. I got to do something.

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You got to make the paint stop. How do you

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advise those folks.

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The only way to address this properly

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is you have to have the plan in

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place in the first.

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Place, so you have to be prepared.

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Investors have to understand

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that investing is about accepting

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risk.

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That's a good thing. Volatility

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is a good thing.

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And the reason is it creates the

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big equity risk premium. If stocks

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would always go up, then there'd

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be no risk and the equity risk premium

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would disappear and you get CD

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or Treasury bill like returns. So

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you want that volatility. But

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the key is you cannot panic and

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sell because that leads to bad

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results. So key is, as I've written

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in my books, you don't want to take

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more risks than your stomach can handle,

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because if you do, regardless

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of your knowledge of this and

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the wisdom of the stay of the cost,

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your stomach is going to scream

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when it reaches the GMO point, it's

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going to scream, get me out,

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and you will likely.

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Panic and sell.

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Now that's what we see, and then

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it's never safe to get back in. Never

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have I seen a day in twenty my

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thirty years in this business where I could

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say, gee, it's really safe to be an

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investor, because we know there are all kinds

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of black swans out there

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that can occur tomorrow, like

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COVID nineteen as just one example,

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the Black Monday in eighty

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seven as another. I mean taleb

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has written about this a lot, these

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black swan events. They'll come up and markets

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crashed, and you have to be prepared not

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only to do nothing, but to be

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able to rebalance, so you get to buy

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low like Warren Buffett.

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So let's talk about the opposite of fear.

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Let's talk about greed. What

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do you say to a client who calls up and

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says, hey, AI is the

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future, and I got to get me some of that. I

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don't care what it is, Buy me a dozen different

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AI companies because the train

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is leaving the station and I don't want to be left behind.

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Yeah.

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Well, if it was that easy, then the

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vast majority of professional

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investors who

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have now today PhDs,

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not only in finance, but in nuclear

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physics, mathematics, they would

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outperform. And yet the evidence

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is clear. All you have to do

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is look at standard and poor spever

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results persistently over

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the long term, even before

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taxes, over ninety percent of

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the active managers underperform,

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and there's no evidence of any persistence

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beyond.

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The randomly expected.

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So manager who wins the last three

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years, that tells you nothing virtually

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about the.

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Next three years.

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So why do you think you're going

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to be able to outperform? What advantage

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do you have over these geniuses

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who get to spend one hundred percent of their

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time doing it where you're doing it

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as a part time you

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know, enjoyment. Maybe

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the odds are close to zero you will

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succeed.

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So to wrap up, invests who have a

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long term time horizon that's

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not five years or even ten years,

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but twenty years longer, should

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expect distractions along the way.

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There are going to be recessions and market crashes

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and geopolitical events. Investors

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need to understand that's just part

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of the normal landscape.

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Markets go up and down, but the.

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Biggest Winners are those who stay

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the course and hold for the

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long haul. I'm

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Barry Ridholts and this is Bloomberg's

13:37

At the Money