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Simple Advice, Difficult to Execute
I don’t remember how young I was when my Uncle Art asked me if I wanted to know how to make money in the stock market. He said “Buy low, sell high. That’s all there is to it. The trick is knowing when something is low and when something is high.”
Today, the Wall Street Journal had an article titled Investors pull their money out of their 401(k)s. The article included this quote:
With stocks falling, credit tightening and unemployment rising, small investors have been raiding their 401(k) accounts or slashing contributions to the popular retirement plans, according to the latest tallies of plan administrators. Others, eager to shield their portfolios from further damage, are reducing their exposure to stock mutual funds to near record lows.
The difference between “difficult to execute” and “plain old stupid”
If you leave the market at a low and buy when it’s high, then you are completely addled about how stocks works. You should go to Vegas. In Vegas, you’ve got a small chance of winning. Buy high and sell low and you might as well just burn your money.
For a few moments, I hoped the article was describing the hardships of retirees who need their 401(k) money to survive. If so, then this article would be describing an important problem that would need to be considered in all the bail-outs, candidate speeches, and so on.
The article soon confirmed, in a later quote, that this wasn’t a story about hardship. It was a story that showed that people suck.
Massachusetts’ Secretary of State William Galvin says his office received numerous calls from people who were in a “panic state” and liquidated portions of their 401(k) accounts last week when the market tumbled, not realizing they triggered tax penalties. Mr. Galvin, the state’s chief securities regulator, is urging Congress to eliminate the 10% penalty on such withdrawals — which comes on top of regular tax rates — for investors who may have acted without knowing the consequences.
There are so many things wrong with this quote. I’m going to go to bed, pull the covers over my head and pretend that I never read this article.
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