In past posts I have talked about understanding the moment. This applies to many things including markets and investing. The above tweet from financial acrobat captures the moment that we have been living through for the last fill in whatever time period you think fits.
The other day I made a comment about how we have wriggled out of actions without any consequences (yet?) where there should have been consequences and so we should not be surprised if that continues but in terms of understanding the moment, the world of finance has been turned inside out.
The market has gone up for years in the face of all that and it is important to have captured at least some of it but if anything about finance theory and how markets and capitalism are supposed to work is correct then we also need to be cognizant that a severe coming to Jesus moment could be waiting around some corner for us.
This is not an attempt to predict an apocalypse. The world did not end because of 2008 (remember some people actually thought the world was going to end), the market has obviously since made a new nominal high but a market that falls a lot can permanently impair capital depending on human reaction to it falling a lot.
There clearly was a lot of selling at the financial crisis lows and some unquantifiable portion of the selling never came back thus permanently impairing capital. The next time the market cuts in half, whether as a consequence of the last five years or for some other reason, there will be a new set of people who permanently impair their capital.
This makes discipline to your strategy the most important thing you can do. If you are one to take defensive action based on some trigger point (like we do), then stick to it. If you are one to hold on no matter what, then you need to stick to that. If you doubt your ability to remain disciplined then you have a chance right now with market at all time highs to either pack it all in or greatly reduce your equity exposure in order to avoid permanently impairing your capital based on a panicked reaction after a large decline.
The best thing in my opinion is to stay engaged but not everyone is emotionally equipped to do so.