The Hardest Thing To Do In Investing

Recently I got into a discussion about the hardest to do in investing. Like it or not, emotions always come into play when it comes to investing. Some investors identify the fallacies and try to remove emotion from the decision making process and succeed, while most people tend to fall for the inherent psychological nature we humans are programmed with. Investing at some point in time becomes more about understanding human/market emotions and psychology than anything else.

Investing to grow our assets over the long run is a shared goal that we all have, but it is also important to remember that it is a zero sum game. Every time you buy a security on the market, there is a seller and vice versa. So, we need to ask ourselves the question: what does the counterparty know that we do not. Is the other person buying or selling with potentially more information/knowledge on the matter or is the move based on ignorance? This is really hard to fathom on a scale as big as the stock or bond market and macro issues that are not under anyone’s control. Chances are, there is no one single answer for all cases. As they say, predicting the future is a fools errand, but so is ignoring market psychology.

With that mind, I wanted to discuss what is the hardest thing to do in investing? I gather it is one of the three options below. Whether you agree or disagree, feel free to share your thoughts in the comments section below.

Buying Low

Whenever we are close to a market bottom, emotions are running deep as the fear grips most investors and we clam up and hold dear onto our hard-earned money. Buying at market depths is almost never possible to time perfectly. But at the same time, it is possible to identify relative valuation and know whether something is trading closer to the bottom than not. Fear is an important tool that has served us humans well through our evolutionary process. Our instincts have developed over the millennia to not take unnecessary risks; to avoid getting killed. When fear grips our emotions, we have a fight or flight instinct. This is a very useful emotion and should be garnered by investors.

Taking this in the context of investing, it can result in losing a big part of your nest egg (think buying/holding financial stocks in 2008/2009) or result in outsized returns (think buying non-financial companies in 2008/2009 that simply fell because there was widespread panic). As I’ve learned from my past experience, listening to others and the “experts” does not make an investment safe. I lost a lot of my money when I went after the beaten down financial sector, but also did really well in other companies — all in all, it was a valuable lesson that will serve me for the rest of my life. How does an investor know that something is just a temporary blip that will eventually bounce back or a crisis that a business cannot withstand and eventually has to go bankrupt? The ability to differentiate between the two is what sets the great investors apart from the rest.

Selling High

Selling and realizing capital gains are another hard thing to do. As an asset continues to climb, our psychology tends to grow from content to greed and hubris. We expect things to continue going higher and higher with no changes ignoring all sorts of warning signs that might exist. The greed drives us into a thinking loop of “There’s no way this party is ending” or “What if I miss out on more future gains?” even after substantial gains. This is a pitfall that most investors tend to fall into, and one of the primary reasons for bubbles to arise in the economy — whether in stocks, home prices, commodities etc.

I personally feel that this is the state we are in currently. We have had a bull market running for 7-8 years and after a lot of easing from central bankers through the plateauing and shrinking of profits, investors continue to think that the stock market can never fall. Markets simply just don’t keep climbing to infinity. What goes up must come down…everything is cyclical. This lofty market too shall collapse sooner or later. Taking profits at this point in time seems prudent to me, but not so much for plenty of others in the community as regular readers may have noticed — based on the conversations on this blog.

Sitting Still

The other hardest thing to do is sitting still. We always want to keep tweaking our portfolios trying to achieve slightly better results, trying to get more alpha. This becomes even more harder to do when we have an outsized cash position as we start thinking that the money isnt working for us. We want to swing at everything hoping to catch an easy ball and score a home run. In fact, most professional investors suffer from this as they think that they are being paid to take risks. A recent article on WSJ caught my attention reminding me of how hard it is to do nothing.

I personally think that having a decent sized cash position especially when there are elevated risks of market crash is prudent. Putting my last dollar in my investment account into a stock just so that “its working for me” is a terrible strategy. Cash provides with liquidity and immense power/leverage during market crashes as it allows for making moves that can result in outsized returns. It can supercharge the overall portfolio when stocks or other assets go on sale due to widespread panic. Remember that a lot of market crashes can be attributed to liquidity issues, and during such times: Cash is King!

There are a lot of hard things when it comes to investing. These are hard questions. Answers are even harder and more complex. There has been a lot of research published to help us with our decision making process. As is usually the case, there is no one-size-fits-all. Each investor behaves differently and uniquely depending on personal situation. What do you think is the hardest thing to do in investing? Share your thoughts below.

33 thoughts on “The Hardest Thing To Do In Investing

    • Haha…its something most investors are guilty of. It will take time and slowly wear off….but with the current quick access to markets everywhere, its hard not to look regularly.

      Thanks for sharing

  1. Timing the market- selling high or buying low- is difficult. It’s tempting to try, but I feel much better about my investments by leaving them to it on a day to day basis and making automatic monthly investments to smooth out the ups and downs.

  2. JC says:

    All of these are hard to do although I think the 2nd and 3rd are the hardest. I’ve been trimming some positions that have had great success and I didn’t really want to trim them because the valuations weren’t crazy, but I also recognize the value of cash. The thing for me is that I’m relatively young so I want to lock in some of the profits instead of just giving them back via some market calamity. Done correctly and you can generate better returns over the long run. Yeah I think the majority of the companies I’m invested in will come through the next recession just fine and likely be stronger than before so buy and hold for most of these companies will work, but it’s just not as efficient as it could be if you can identify the overvalued situations and keep the profits ready to reinvest in the future.

    It’ll be interesting to see how the next one plays out given that central banks, including the Fed, are already or have stated that they would buy assets on the markets to support markets. That’s crazy and part of the reason that we’re in this mess. They didn’t let the last recession run it’s full course by keeping interest rates so low which just boosted up the leverage on many companies balance sheets.

    • I hear you on taking the profits, JC. I have the same outlook. I’d rather book those gains that Ive seen rather than letting the market calamity reclaim those $s. I still follow the buy and hold approach atleast for a part of my portfolio. I will be looking to add to those positions during the next crisis.

      Haha agreed that the central bankers are going crazy with their policies. Buying equities directly? Where does it stop? Because clearly that has worked out very well for Japan /s

  3. The hardest thing in investing is buying and holding, no matter what noise you get out there. It is even harder to buy investments, whose real results will be visible decades from now – this is very hard for the brain to comprehend, when the brain wants immediate gratification.

    It is even harder to differentiate between an item being “noise” and an item being “useful”. This is where having a clearly defined strategy will be helpful to the investor, who is in the middle of the battle.

    The more you touch that portfolio, the higher the likelihood that you will make a mistake.

    Very few can time moves in and out of investments perfectly, and with a sufficient degree of success to make it worthwhile. The investment world is filled with the corpses of those who sold out high, only to watch prices go higher. It is also filled with those who sold low, and never got back.

    Of course, the terms high and low mean different things to different people. And the future is not known in advance. But changing the plan too often could cause errors, that could be costly in the long run. And the goal is to invest that nest egg, so that it can provide for decades, not just over the next market cycle ( whether it can be identified in advance or not)

    • I think we all agree that its impossible to time the market perfectly. Whether someone has taken 50% gains or 100% on a security, we always tend to look back and either be pleased or lament after booking those profits. If a security continues to rise after selling, is it really so bad that a smaller profit was booked? Perhaps the personal situation has changed or the risk tolerance has changed and a sale is warranted. I still maintain that ignoring all warnings and maintaining a Buy-Only-And-Never-Sell strategy is not right for everyone 🙂


      • What warnings? The high CAPE?

        It does not have a predictive value that results in better results than buy and hold.

        What other warnings? I would be curious to read a more detailed analysis ( as I talked to you on Twitter), because I do not know what you mean by that exactly.

        In general, the problem is that you do not want to be in a position to water the weeds, and pluck out the flowers.

        No matter what you end up doing in investing, be it buy and hold, or active day trading, or something in the middle, you want to ride out your winners and cut your losers. This is because you will likely strike out on a lot of investments you make. But a few winners will more than compensate for the losers you have. ( this is essentially the paretto principle in action).

        So if you do too much activity, there is the risk that you will not let your portfolio move to its full potential. In other words, you need to give the companies time to become winners, and for the rest to become losers.

        Even a guy like Buffett is only right on probably 40% of his investment selections. And he has discussed the dangers of selling. Academic research has shown that the sales of the average investors have done better than the subsequent buys they made.I speak from personal experience, and can tell you that most everything I have sold over the past decade has done better than the investments I picked as a result of the sale.

        I have observed other bloggers that share their buys/sells, and have seen the same conclusion. If you for example buy General Mills at $45 in 2014, and sell at $53 in 2016, you have missed out on a lot of appreciation and dividends that is two or three times as much as you booked.

        • Hi DGI,
          Heres a quick list of the problems off the top of my head — each topic can be a full report in and by itself and will need further digging. I’ll leave it up to you to do that if you are interested.

          * CAPE has yielded some false positives in the past, but also has been a decent indicator at pointing out underlying problems
          * Stock market is a TINA (There Is No Alternative) trade
          * Same applies to US$ — it continues to be strong because TINA
          * Earnings are in a recession
          * Buybacks, a driving force for EPS growth for the past few years, have leveled/peaked
          * The state of bond markets worldwide should be a clear indication of the state of outlook. Corporate defaults are already starting to rise in some sectors.
          * The big one: Fed. Increasing the interest rate by 1% will result in what kind of bloodbath in bond market (I saw a number as high as $2.5T on some sites). Do you think that this will not affect the stock market whatsoever?
          * GDP growth is slowing down
          * Capex and other forms of investments have dropped into negatives
          * Manufacturing is in doldrums
          * Housing markets have peaked in some regions and showing signs of strain
          * Consumer debt is bloated and cannot grow by much from here unless we see a contraction first or a paradigm shift. Consumers play a big part in the US economy. You have a shrinking middle class in US as more ppl fall into poverty and social discourse rises due to rising inequality. The pension debacle in the US will be another nail in the coffin pushing towards social unrest. Your healthcare costs are out of control. Velocity of money has completely collapsed and shows no sign of change.
          * If all of the above wasn’t enough, you have both US presidential candidates discussing nuclear war as if its a no biggie.

          All of these are clear indications of the coming tsunami for anyone who looks at the state of the economy objectively. Will this result in a rout that will bankrupt all of the companies? No. But I dont want to be left holding a piece of paper when this happens and the reason why I am moving more towards hard assets as I see refuge there.


          • Hi Sabeel,

            Thanks for your time and list.

            I am always fascinated how different people can be observing the same information, and process it differently.

            I am actually hoping that you are right, and that we get a decline from here.

            If my net worth is say $100K today and I invest 10K – 15K/year over the next decade, I will benefit from lower prices as I will be able to get more stock for my buck ( all those numbers are for illustrative purposes).

            Though I will keep on those ownership pieces of businesses I already own.


          • Hi DGI,
            Hahaha..yeah I guess it depends on how you look at things and interpret the data. I am more pessimistic about the outlook as is evident.

            Btw, if you havent seen this one already, check it out…lots of data here. Some of it looks positive, but also some negatives based on the outlook.

            I am keeping my fingers crossed for a market correction and looking to buy big when that happens. I would rather buy JNJ at $60 rather than $120. One can dream right 🙂

            Best wishes

  4. Haha. I can only imagine the comments/emails you’ll get on this one R2R. I think the answer depends on your personality type. For me, waiting is the toughest part. I am tempted to buy things that don’t meet my criteria from time to time…..and sometimes I even give in 🙁 My personality is such that buying low is easy……and selling anything is almost as easy. I’m a frugal fellow who loves to scout out a bargain. As for selling, well everything has it’s price. I don’t always hit the top…..but no one does. Guess I’ve never been a “true believer”. Anyway, with my personality…..standing still is definitely the toughest part. We’ll see if it pays off for my family this time….like it did last cycle.

    I hope you’re having a great weekend.

    • You hit the nail on the head. It definitely depends on the personality type. And as I read the comments here, I come to the same conclusion again. Each investor is different and unique and has his/her own personality traits showing. Good to hear that the last cycle paid off very well for your family. Heres to the next one and beyond 🙂


  5. I think its the waiting for sure. I’m pretty sure my attempts to buy low and sell high will pretty much cancel themselves out – sometimes I’ll buy too early or too late, and likewise, sometimes I’ll sell to early or sell to late.

    I do find it incredible difficult to sit still while constantly being bombarded by information and other people’s opinions. I’m so bad at doing nothing that I’ve got three posters (one on the fridge, one on the door and one at my office) reminding me that the money is made in the waiting. A dumb but effective solution!

    • Haha I am in a similar position…I find sitting still hard to do although I am getting better at it with each passing year. I have been patient with things in the past, and it took me a while to hone that skill when it came to investing, but I still have to keep fighting those urges to buy when the market valuations are insane. Thats a great way to keep reminding yourself and focus on the waiting game.


  6. That’s an easy question for me. The saying goes that buying is hard but selling is harder holds true for me. I sometimes am a long term holder to a fault very rarely selling which is not always a good thing especially when trying to figure out when to take a profit or when to cut losses. I know I can sit still as very little about the market phases me especially after seeing my entire portfolio get trashed in 2008/09 and I simply stayed the course. So I know I have patience and can sit still but sometimes “knowing” when to sell is tough for me.

    • Hi Keith,
      The fact that its a easy question for you shows that you have a lot of self awareness. Thats a great thing and missing from many of us. Knowing ones own strengths and weaknesses is key to success in life. Selling is never easy as we always tend to look back and see if we could have done better.


  7. I think timing the market is incredibly hard. I think the better thing to do is put in regular investments and dollar cost average. That way it takes out the guess work and you’re able to invest your time into other things that you’re passionate about.

    • Slow incremental investments do play a good part in taking emotion out. It works better when it comes to index investing which is why I maintain a portion of my portfolio in index funds.

      Thanks for stopping by and sharing your thoughts

  8. Great article. I really enjoyed your perspective on this (and thanks for sharing it even though we’re in a zero-sum game!) I think for me the hardest part about investing is sitting tight. You hit the nail on the head.

    For me, I’m happy with my investment process. So most of the time it’s just a matter of following my rules, which is always a challenge I’m working on. But over the years I’ve found the less I tinker, the better I do. Plus, it gives me more time to do fun things instead of worrying about my stock portfolio. Thanks again for sharing.

    • Glad you enjoyed it, Jay. Sitting still is also hard for me too — so I think we are in the same boat there. The need to swing continuously at everything is what gets us over time.


  9. I think the hardest thing to do that you mention on this list is to sit still. Buying low and selling high are difficult, but there’s nothing harder than not doing anything and just hoping it works out. You need patience and resilience to be able to sit back and say, “I’m going to wait and see.” It’s really mentally challenging!

  10. True emotions do play a great role…and usually stop people from making huge financial gains. I started Investing in stock market from 2007 and soon after there was the recession. Most of my stocks went more than 50% down. I had the money then and deep down I knew I could make a lot if I can hold on and sail through that period but I just couldn’t muster the courage to invest any further since I was new to this and now I see I could have easily made 3 times the money had I not got nervous then.

    • Looks like we both started around the same time. I think my first purchase was 2008, although I started with some mutual funds in 2007. Lots of painful days during those times as I kept buying losers after losers. But learned a valuable lesson by doing so.


  11. For me, the hardest part is selling high. I tend not to sell at all. Of course, I’m a dividend investor, so I try to avoid selling good dividend payers if I can help it.

    It really depends on your end goals and view of macroeconomics in your investing style. For me, my end goals are to collect dividends to fund my life. Capital appreciation is an afterthought at best, and detrimental to what I’m trying to do if it means selling off the very assets I need to accumulate more of. Of course, there is a case to be made for selling an overvalued company and using the money to buy an undervalued one, but unless the share price becomes ludicrously inflated, I think there’s just as much of a case against. I personally want to limit my trading activity as much as possible.

    As for macroeconomics, I definitely agree with the idea of keeping cash on hand for a market crash. At the same time though, I also agree with the people who put capital towork as soon as they get it. One should definitely have SOME cash off to the side, but waiting for a market crash that might take some time to manifest doesn’t help you either. There are opportunities all the time to buy undervalued assets; it does no one good to forego them under the excuse of “I’m waiting for the market to crash”.

    I try not to be blind to macro factors such as the stock market, Treasury bond yields, oil prices, or interest rates, but I don’t pay them any mind either. For me, it’s always going to be a question of “Will this business be around decades from now, and will it be selling more of its product to more customers at that time?”, not where the pride of gold is going or where the USD/EUR rates are going to be. Stuff like that is why I don’t do forex trading. Let them worry about Brexit; I’d rather try to predict whether McDonald’s will still be selling burgers in London a decade from now (an easy prediction) than where the Pound will be in regards to global trade, exchange rates, and inflation vs retained value (no clue).

    Not attacking your investment strategy or philosophy, R2R. I wrote once on your blog’s comment section that investing is useless if you can’t sleep well at night. It depend on where you see value and safety, where you see future wealth coming from, and where you see future protection coming from. For you, it’s hard assets that you want growing and protecting your wealth. For me, it’s the businesses of the Western world that I’ve put my faith in. Tangible assets you can feel, or growing assets that spit off more wealth. Hopefully, we’ve BOTH made the right choice; it’s not like no overlap exists.

    Really great article. I enjoyed immensely.

    ARB–Angry Retail Banker

    • Hi ARB,
      Thanks for stopping by and sharing your thoughts. Lots of good nuggets there. It is a good thing to keep in mind that there is always going to be risk involved and its a matter of managing them and evaluating the risk-reward for each investment option. As you said, it all comes down to the Sleep Well At Night. If you cant SWAN, then what the point of investing and putting all that capital at risk. I am not trying to pooh-pooh dividend investing — I still own about a third of my portfolio in DGI stocks. Theres a lot of like about those companies. I just beat the drum so that people realize that paying attention to valuations is important and selling a stock does not equate to satanism 🙂 As you said, hope we are all making the right choices for our families and theres definitely overlap.

      Best wishes

  12. I think being patient is one of the hardest parts for me. There are so many great businesses out there they we aren’t invested in, that I want to own more of. So when spare cash comes along, we hit the buy button – when waiting may have been the better option.


    • Haha I hear you, Tristan. Waiting also seems like a hard option to me, but I am getting better at it as I get older and more patient as an investor. Most of the the investing game is played waiting — and making moves constantly becomes a drag on the overall returns


  13. Andy says:

    The biggest mistake investors make is selling great businessss because they’ve gone up a bunch. Selling high is a sure fire way to prevent long term gains, but whatever works for you I guess.

    Market has been roaring since this article. Hope people didn’t “sell high” and lose out on even more gains.

    • Hindsight is 20/20 isnt it? Its the future prediction that gets all of us…for which investors simply have to go with the next best option — evaluate the present and take steps that best suit according to your risk-reward tolerance.


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