It is prudent periodically to upset the apple cart in order to see what sort of rot and grime are sitting at the bottom. This series, which will include four or five posts over the next few days, will explore some common myths about investing and the investment industry.
The single most important take-away from this series is this: almost no one in the investment industry is motivated to take you out of the market when the risk is high. Because of this, almost no one in the investment industry is motivated to create systems and tools that signal when to get out.
Imagine for example that Fidelity, with $1.57 trillion of assets under managment, instructs their managers to pull their funds entirely out of the market. This would cause quite a dislocation. So what did they do? As necessity is the mother of invention, large money managers invented 'buy and hold'.
For evidence that you or your Advisor may be a slave to the loss aversion instinct, look no further than your portfolio. If there are many positions with large losses that have been on the books for several months or years, loss aversion is a likely culprit. Successful investors sell their losing trades quickly while letting their winning trades run.