An ongoing debate for investors is whether or not the strategy of “buy and hold” is better or worse than trying to time the market. The advocates for each side of this debate are fairly passionate about their positions which makes it difficult for retail investors to sift through the numbers that “support” each side. Even so, there are some interesting points to reflect on in the following infographic (originally found here) that attempts to explain the decision making tendencies of retail investors.
The crux of the infographic is that most investors are far too emotional when it comes to making investment choices, falling victim to their own mental trappings. Biases such as loss aversion, mental accounting, overconfidence, anchoring and sunk cost fallacies can all interfere with the ability to stick to a defined strategy.
Even though the ‘solution’ offered is to stick to a long-term investment plan, doing so is much easier said than done. Plans are only as good as the discipline to implement them, which is something short-term traders, market timers and buy-and-hold investors could all agree on.