Well, that was quite a year! As I write this, we are near the anniversary of the corona-crash. The turmoil of the last 12 months presented several lessons. Many of them aren’t new, but were merely delivered once again.

Here are a few of the lessons that had to be learned—or relearned.

Market Timing Is Hard
There are many reasons the majority of advisors strongly recommend against trying to time the market. The most important is simply that it’s really hard. Getting out before a drop or in before a spike is obviously a way to make a lot of money fast. Yet few do it successfully.

The corona-crash showed once again that making correct predictions about the direction of the markets doesn’t make timing profitable. Even if you got out at a good time, the window to get back in was rather brief. Markets rose fast off the March 23 bottom.

You have to be right about getting out, then right about getting back in, then about when to take profits. And you have to be right by enough of a margin to overcome the costs of moving around. That’s a lot of being right.

In taxable accounts, finding timing success is even tougher. Any short-term gains increase taxes.

The late, great Jack Bogle summed it up well: “I do not know of anybody who has done market timing successfully. I don’t even know anybody who knows anybody who has done it successfully and consistently.”

Even if all that works, you have another problem. You will almost surely be tempted to try it again. You might anxiously watch out for new market setbacks if Covid variants arise, political winds shift or a million other things go wrong. But something will convince you another crash is coming. If you successfully avoided one, you might be tempted to avoid another and you’ll seek out signs.

That temptation is great, and so is the stress associated with trying to predict market moves. Some people who start out as long-term investors succumb to the angst. They don’t know what’s about to happen, and switch from an approach that doesn’t require short-term market prognostication to one that requires them to be right about the market’s direction.

It’s a bad move that defies logic and is unlikely to cure what ails them. Hopefully, more people will see it that way.

Rebalancing Is Smart
Despite an incredible array of setbacks, markets have trended up. Long-term investors believe the aggregate value of businesses will be higher many years from now, and so the trends should continue. This means it’s smart to buy some of these businesses at lower prices when there’s a market setback.

It’s also smart to sell some stock after a large increase in prices. If you’re an investor with appreciated stocks, you have been rewarded for accepting risk. If you are prudent, you also believe in taking profits from that appreciation and reducing your risk, and you know that it’s better than trying to figure out when the stocks will actually peak.

This is what a rebalancing discipline asks of you—that you buy a little when prices are low and sell a little when prices are high. It allows you to keep a well-diversified portfolio with an appropriate risk profile. You don’t need to predict short-term market movements.

Here’s what I could have predicted about a crash, even before Covid-19 happened: that those who slashed equities in a crisis would do worse than those who froze and did nothing. That those who froze would be bested by those who rebalanced. And that those who rebalanced aggressively would do best of all.

When I look at client accounts for 2020, that is exactly what happened.

In the end, it didn’t matter if the crash was due to Covid or something else. It has been this way in every bear market and should be that way in every future bear market, because businesses are adaptable. In the aggregate, they should be more valuable in the future, and market values should reflect that. It’s just math and common sense. Buy low. Sell high.

Every Time Is Different, But This Time Is Not
So why is it that many clients balk at rebalancing and some even panic? It’s the narratives flying around everywhere, including in their own heads. The thinking goes, “Sure, every time in the past, markets have recovered but” (here it comes) “this time is different.”

The corona-crash was different. Technically, every time is different. The way the tech bubble and bust played out was historically unique in many ways. The 2008 financial crisis was unprecedented. The havoc wreaked by Covid bore little resemblance to the way the swine flu, Ebola, bird flu or Covid’s cousin SARS affected the world.

I was genuinely surprised at the speed of the recovery but I was not at all surprised that it recovered, and did so before my clients would need to make any adjustments to their plans. Not surprised one bit.

Take Command Of Your News Intake
The legitimate journalists of the world are in the business of bringing things to our attention that are new and noteworthy. They tell the story using facts and differing viewpoints. Unfortunately, as we have all seen, there’s a lot of news that has an agenda or is erroneous.

This has always been an issue, but the number of outlets competing for our attention and the provocative tactics they use to get it have created an environment in which very smart people can think and do very dumb things.

I live on Florida’s Space Coast. The area is crawling with rocket scientists. For nearly 30 years, I have assumed everyone in my meetings is smarter than I am. Yet so many people I talk to have gone from wanting to keep their assets working for them for the rest of their lives to obsessing about what an account statement might say next month. They have gone from focusing on what they can control to worrying about things they cannot, like what a political figure might say or do.

There has in fact been plenty of disturbing news these past 12 months, from Covid to protests to the election and the raid on the U.S. Capitol. More bad news will come. That’s life. People have every right to be disturbed by these things. I am too. It is easy to see them as obstacles that cannot be managed or overcome and represent a clear and present danger to markets.

But it’s a mistake for prudent investors to throw out the long-term perspective that’s offered them such a spectacular record of success just because they’re listening to the news of the day and suddenly want to adopt the short time frame of speculators. The results are likely to be less than ideal.

We’ve done well preventing that mistake by getting clients to see that their news intake is one of those controllable items. It takes some coaching, but they can learn to be picky about what news they listen to, when they digest it and, most important, what they do with it when it’s disturbing.

Planning Is Key
In every period of turmoil there are some who don’t learn the lessons. I am optimistic that some of our own clients who didn’t quite understand the timelessness aspect of investing before will understand it now.

The past year was a wild and stressful ride. So stressful that a lot of people are looking to adopt a less news-centric existence and approach to the markets. That’s great. Being a long-term investor is not easy. But being a speculator is even harder and more stressful.

But the speculation impulse always returns. It’s been 20 years since the day-trading craze ended—with poor results for those who dabbled in it. Is a new generation about to gamble away their assets by trading securities or crypto or by looking for the next GameStop squeeze?

Our clients’ portfolios were created, by contrast, through the financial planning process. That made it easier for them to know what to do in the face of turmoil. Having seen the process work yet again, they are better prepared for the next time. At least until they start thinking that the next time will be different, of course.       

Dan Moisand, CFP, practices in Melbourne, Fla. You can reach him at [email protected].