Why is it so difficult to buy low and sell high?

A year ago, after the huge bull market in 2021, I pointed out that investors chasing hot performance often end up getting burned, and just last week I also described how investors fleeing volatility may never get what they want.

Blogger Ben Carlson recently pointed out that these two columns are exactly one year apart, like a bookend. They illustrate the opposite polarization of the stock market and stock investors, why is it so difficult to buy low and sell high?

When you buy high and sell low, you are choosing the path of least resistance: in a bull market, buying high feels great. Celebrate! But selling at high prices—or simply not buying more at high prices—is difficult. It feels like being unable to dampen the mood at a party, you must participate, afraid of missing the best opportunity to make easy money.

In a bear market, selling at low prices can bring relief (at least in the short term). At the same time, buying at low prices—or even maintaining the status quo when others panic—feels like throwing money around in chaos.

Investing in buying and holding is often ridiculed as a blind 'set it and forget it' approach. But do not overlook the fact that resisting the powerful lure of market extremes requires immense emotional discipline.

Setting it is relatively easy, forgetting it is the hardest. The investment industry bombards you every day with speculation about recent performance and pretends to predict the future, trying to make you buy high and sell low. That's why discipline is so important.

As Cliff Asness, the founder of AQR Capital Management, said last week at an investment conference at Columbia Business School:

"The definition of insanity is doing the same thing over and over again and expecting different results. When you feel like it's punishing you repeatedly, sticking to a great investment process doesn't require 'insanity,' this is your job."

Translated from Jason Zweig Feb 2023