Review & Outlook

Our take on the investing, financial, & economic themes of the day

Avoiding Panic

9 August, 2011 by Ben O'Brien in Commentary

In yesterday’s Wall Street Journal Princeton economist and market commentator Burton Malkiel offered some wise words about the dangers of selling stocks in a panic:

A strong dose of modesty is clearly in order. We all need to be aware of the limits of our ability to forecast future stock prices. No one can tell you when the stock market will end its decline, but there are some things that we do know. Investors who have sold out their stocks at times when there have been very large declines in the market have invariably been wrong. We have abundant evidence that the average investor tends to put money into the market at or near the top and tends to sell out during periods of extreme decline and volatility. Over long periods of time, the U.S. equity market has provided generous average annual returns. But the average investor has earned substantially less than the market return, in part from bad timing decisions.