Quite often, the market rallies quickly and investors are stuck sitting with cash only to invest later at higher levels making them worse off than if they had stayed invested. It is this dynamic that makes me challenge those investors who want to wait for the “potential” retest before investing. If markets were to retest the lows, what are the odds of investors actually investing? Sure, some investors will follow their investment plan, but the majority of investors become paralyzed with doubt during severe sell-offs and practice recency bias by sitting on their hands. I believe that it’s one of the single greatest cognitive biases that help explain the difference between the market return and that of a typical retail investor. Recency bias is a powerful cognitive error that tricks you into believing that what has happened will continue to happen. The Magic 8 Ball says, “My sources say no.” Even if this is correct, will investors take advantage of it?
But I believe that does not dampen today’s attractiveness.ģ. Could the markets move lower? Absolutely. Will investors ever have the ability to time it perfectly? Absolutely not. They could dip lower, but in each example, highlighted in sell-side reports of a retest (1998, 20) and as seen on the market’s historical chart, the markets ultimately marched higher. Who do you listen to? At this time based on fundamentals and valuations, markets are attractive. While my team has healthy internal debates within regarding the merits of technical analyses, we all agree that for every “retest” thesis, we have seen a “no retest” from other technical analysts. These forecasts are through the lens of technical analysis. I have come across several sell-side reports that are calling for a retesting of the lows set in December. The Magic 8 Ball says, “Cannot predict now.” Will the stock markets retest their lows before breaking higher?