Maybe an apple a day keeps the doctor away and you shouldn’t count your chickens before they hatch. But here at Money we’re not always so keen on taking advice from old adages.
At least, not when it comes to investing.
To be fair, there is wisdom in some sayings coined by legendary investors, and classic tips like “it’s about time in the markets, not timing the markets” can actually provide helpful guidance.
But if you buy stocks based solely on a common phrase you’ve heard or read, you’re probably not doing yourself any favors. Besides, every investor’s situation is unique. Only you (and maybe your advisor, if you have one) know your exact goals, timeline and risk tolerance.
Investment strategies: 8 sayings you can probably ignore
Here are eight common investing sayings that financial advisors say you can ignore.
‘Buy what you know’
This piece of advice is closely associated with Peter Lynch, a well-known investor and former manager of Fidelity Investments’ Magellan Fund. It refers to buying stock of companies you’re familiar with. For example, maybe you buy Tesla stock because it’s the kind of car you drive or you invest in Apple stock because you love your new iPad.
But Lynch’s advice may not be the best strategy for investors today, says Tricia Rosen, principal at Access Financial Planning, based in Andover, Massachusetts.
“When he was managing the fund in the ’80s, investing in companies that you know have a superior product or service from first-hand experience may have worked, but now information is much more readily accessible so the markets are more efficient than ever,” she says. “It’s extremely difficult for someone to have information about a stock that isn’t already imbedded in the stock price.”
‘Buy the rumor, sell the news’
This market adage refers to the idea that a company’s stock price will rise during the time period leading up to some likely news affecting the company — and then prices would retreat after the news is widely reported.
But this strategy was more useful in the days before the overwhelming amount of data and information that the internet provides, says Clark D. Randall, founder of Financial Enlightenment in Dallas. Nowadays, we have every piece of news at the tip of our fingers in the form of quick online searches, news alerts or social media.
Plus, investors can react really quickly — buying or selling securities with just a few taps on their phones — thanks to trading apps.
“Today, the markets are much more efficient and this strategy is not as useful,” Randall says.
‘Buy the dip’
“Buy the dip” has become a favorite saying in the meme stock and cryptocurrency era. As we wrote last year, the advice — which refers to buying an asset after its price has dropped — has inspired memes, TikToks and more.
But if you’re focused on the long term, buying the dip is probably not sound advice.
“It leads investors to believe that they should take action based on an event out of their control,” Dennis Morton, founder and principal of Allentown, Pennsylvania-based Morton Brown Family Wealth, says of the strategy. “If they have a thoughtful financial plan and investment strategy, then the best action may be no action at all.”
‘Wait for the pullback’
Saying to wait for prices to pull back implies that there is a crystal ball out there, says Jason Siperstein, president at Eliot Rose Wealth Management in West Warwick, Rhode Island. But no one knows the future.
“What if the pullback never comes?” Siperstein says. “Or a 5% pullback comes after a 30% rally?”
As with so many investing sayings that should probably be disregarded, this one encourages people to try to time the market and focus on the short term — which is the wrong philosophy when it comes to successful investing.
‘Sell in May and go away’
Historical data shows that stocks tend to perform better November through April, which has spurred the saying “sell in May and go away.” But, as Fidelity Investments recently pointed out, “stocks tend to record gains throughout the year, on average, and thus selling in May generally doesn’t make a lot of sense.”
Besides, investors shouldn’t change their strategies purely to avoid losses associated with a certain season, Justin McCurdy, executive director and financial advisor at Manhattan West, an investment management firm based in Los Angeles, told Money earlier this month. So the same goes for the notion that September is historically the worst month for stocks.
The smart advice is to make changes to your portfolio if your current strategy is no longer suitable — not because of seasonal anomalies that may or may not actually occur in a given year, McCurdy added.
‘The trend is your friend’
Momentum trading is an investment strategy in which is an investor tries to capitalize on a trend — similar to the saying “the trend is your friend.” For example, if you’re momentum trading, you may buy a stock when you think a price will continue to rise or sell when you think it will keep falling.
Unfortunately, your thinking may be wrong.
“There is no way to know with any degree of certainty when a trend is going to shift, so it’s not a reliable method to determine when to buy or sell stock,” Rosen says.
‘Buy low, sell high’
Yes, in an ideal world you could always buy low and sell high.
But no one can execute this strategy all of the time, or even a majority of the time over the long haul.
The phrase “buy low, sell high” is not a reality for most investors, says Catherine Valega, wealth consultant at Green Bee Advisory in the Greater Boston Area. In fact, the concept may make investors’ lives more stressful and cause them to lose focus on their long-term goals.
“It just helps the average retail investor panic about market timing, instead of simply financial planning and investing according to their risk tolerance and time horizon,” she says.
Investors may instead want to consider dollar-cost averaging — a strategy that entails investing a fixed amount regularly, like $100 each month.
‘This time is different’
This saying is one some investors tell themselves to justify a move that goes against longstanding historical market trends. For example, they may believe the market won’t recover from a downturn because “this time is different” — despite the fact that downturns are routinely followed by upward swings for stocks.
“Usually when people believe in this saying, it prevents them from actually investing their dollars because they are operating from a place of fear,” says Anjali Jariwala, founder of FIT Advisors in Redondo Beach, California.
Fear is never ideal when making investment decisions, and long-term investors should really have their money invested, she says.
“The markets are very resilient and have been so for many years so whatever event is happening now, the market will adjust and correct,” Jariwala adds.
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