Think about this pattern for a minute.
At the top of the market we can’t buy fast enough.
About three years later at the bottom, we can’t sell fast enough.
And we repeat that over and over until we’re broke.
No wonder most people are unsatisfied with their investing experience.
- Carl Richards (The Behavior Gap)
The problem is to recognize that, in aggregate, investors tend to be very bad at timing the market. The other problem is that though we recognize this as self-destructive behavior, we will still fall prey to the proverbial ‘Siren Call.’
So whats the solution?
Professor Shlomo Benartzi (UCLA; of the ‘Saving for tomorrow, tomorrow‘ TED video fame – dont miss the part where he says – “Self-control is not a problem in the future. It’s only a problem now when the chocolate is next to us”) has a very simple yet powerful antidote to remedy this age-old behavioral short-coming.
He calls upon investors to make an Ulyssesan Contract: a decision made in the present to bind oneself to a particular course of action in the future. » Read more..