“Impulse” is a word you’re going to hear a lot about in the next few years in the context of impulse buying and selling in the market. But if you’re at or nearing retirement, impulse could cost you everything.
As the level of optimism in this market rises, the amount of impulse or emotional buying increases too.
It does in every bull market. It’s a fact of life in the markets, and it will cost the little guy a fortune when it reverses (which I pray you know must happen).
I measure impulse buying with what I call my “Grill Quotient” (GQ). It’s a number I arrive at by measuring the amount of time the guys at my regular breakfast place talk about the market and how often they are certain a company’s stock is set to run.
They ignore price-to-earnings, the 52-week range, the 200-day moving average and every other fundamental. Instead, they go with their gut.
As the frequency of this market talk and the number of “sure things” increase, the higher the GQ moves up. And that tells me how close we are to another sell-off.
Hardly scientific but deadly accurate!
It is a measure of over-optimism driven by what is called “media response” (more on that another time).
Right now, I’d say we’re at an 80 out of a possible 100 on the GQ. There is still a little hesitancy in their tones, and most are a little cautious.
Complete and total exuberance hasn’t kicked in yet, but it will. It always does just before the end of a run. That’s when the impulse buying will get crazy.
But unlike most market scenarios, there’s good news about impulse and it comes from one of my heroes of the money business, Jack Bogle. He says you can develop positive impulses in investing.
His idea requires that you own investments suitable to your risk tolerance and also that you leave those investments alone long enough to see some growth.
Anyone who has been in the money game for any period of time knows growth will happen if you can leave it alone. Doing nothing in a sell-off is the big hurdle.
Bogle says that once you see that your money does grow with time and patience, the impulse to continue that also grows. And so the urge to save and leave your investments alone becomes as strong as buying into optimism or selling into fear.
The tough part is holding investments that aren’t sexy and that nobody is talking about at the grill. But those are the ones you can hold through the next crash.
If you’re at or nearing retirement, holding – not timing – this market is how you’ll protect your nest egg.
Bogle and 80 years of data both support positive impulse development. It’s something that must be a part of your plan… or you’ll be another victim of the negatives.
Time and patience. Think about it.