Buy high and sell low

First of all, my crystal ball has not failed me and worked perfectly this time again. As outlined here, my fortuneteller was telling me that a jump in the VIX was coming, which should be associated with a sizable drop in the market. Well, we got exactly that this week, a hike in VIX together with nearly 200 points decline in S&P. After such a fast selloff, it is understandable that the condition is a bit oversold and an attempt to bounce back is likely. So expect to see some buying pressure next week. But if you think this means a sustainable bullish trend from now on, don't be so fast. 

  

If I'm telling you that general investors are constantly buying high and selling low, would you agree? Hardly anyone would but this is indeed a reality. While there is no direct stats to prove that, the long term overall return for average investors should be able to tell the story. See the chart below regarding the annualized returns by asset class in the past 20 years and as a comparison, the average return for general investors. And the average investor's returns are shockingly low, even not keeping up with inflation...... at about 1.9% per year!!

You may ask how this can happen and who to blame. Well, investors themselves are most often to blame. They tend to keep their eyes on the rump in front of them. They follow the herd and act accordingly - throwing the babies out with the bathwater at market lows and buying tulip bulbs hand over fist at highs. A typical "Buy high and sell low" herd behavior, which is a surefire strategy for financial ruin.

Still don't believe it? Then ask yourself, did you buy during the devastating selling in Mar when I said a 20% jump was possible? I doubt many did so. Likely most were busy with selling like there was no tomorrow anymore!😖 How about now? Are you selling or buying? I bet many are buying buying as it feels so comfortable that everyone else is buying. I'm not sure this is a good idea at all in chasing highs now as this may be a short term bull trap that may implode soon, if not already. This week we have seen a few attempts for the market to challenge the 2940 level. Believe or not, this is a rather strong overhead hurdle for the market to overcome as it is a multi-year resistance line. No wonder why each time of the challenging attempt, the market turned back. I will tell you one more reason why a V-shape recovery is less likely and we are not out of the woods yet. Stay tuned!