Dad pointed his finger at me, raised his voice and said, “Sit down, shut up, and listen!” His face was beet red; I’d pushed him too far.

My parents invested in Certificates of Deposit ONLY – they never touched stocks. I showed dad charts from my economics professor outlining how much more an investor would make in stocks – it looked like a no-brainer – they were missing out! Without realizing it, I was putting dad down.

In measured tones, he explained he and his four brothers left high school during The Great Depression. For a decade there was no work. They earned money playing semi-professional softball, pooling it with their parents so they could all survive.

“Don’t tell me the stock market is safe, I know better! I know people who lost everything. We work hard for our money and can’t afford to lose it!”

When I retired, I finally understood. I put the bulk of our life savings in CDs, just like dad. Making money was nice, but not losing it took priority.

When the Fed bailed out the banks and interest rates dropped, reluctant investors, desperately needing income, were forced in to the stock market – and the market continues to set record highs.

The Gurus say…

Many excellent analysts advocate “buy and hold”; believing an emotional investor will buy at highs. As the stock drops they hold on and hope the market comes back, finally selling in a panic when the market is low.

They contend the market has always come back. Investors that held on after the 2008 crash were well rewarded.

Here are some examples:

CNBC: “Investors: Keep your itchy finger off the trigger.”

Business Insider, “This is the biggest mistake investors can make right now”, “History shows that panicking during bouts of volatility is the most classic mistake an investor can make.”

Time: “8 Reasons to Stay Calm When the Market Tanks.” Reason #1 – It Always Goes Back Up. (Emphasis mine) Reason #8 is laughable – It’s an Opportunity for Tax Loss Harvesting. No investor enjoys carrying forward tax losses year after year.

The late, highly respected Richard Russell, founder of The Dow Theory Letters, offers this perspective:

“Hope is a money-loser in the investment business.

Hope will keep you riding a stock that is headed down. Hope will keep you from taking a small loss and instead, allowing that small loss to develop into a large loss.

Hope gets in the way of common sense.

One of the first rules in investing is “Don’t take the big loss.” In order to do that, you’ve got to be willing to take a small loss. (Emphasis mine)