Selling in a fall is the most expensive thing investors do

Everything here earned its place by changing an outcome. Nothing about selling during a downturn is included to round the number up.

The behaviour gap is measurable

Studies comparing fund returns with the returns actually earned by investors in those funds consistently find a gap. The cause is timing: money arrives after good periods and leaves after bad ones. That gap is a self-inflicted cost and is often larger than the fees people worry about.

A fall is not a loss until you sell

A decline in price is a change in valuation; the loss becomes permanent only when the holding is sold. Selling also creates a second decision — when to return — which is harder and usually made late. Investors who sold in major downturns frequently missed the sharpest recovery days, which cluster near the bottom.

Falls are a normal feature

Substantial declines occur regularly across market history and are the reason equities have delivered a premium. Expecting them and planning for them is different from predicting them. An allocation that cannot survive an ordinary decline is misallocated rather than unlucky.

Write the plan while calm

A one-page statement of what you hold, why, and what you will do in a fall is the most effective defence available. The commitment matters because judgement degrades precisely when it is needed. Reading your own reasoning during a decline is more persuasive than reading anyone else's.

Reduce the exposure to noise

Checking balances frequently increases the chance of seeing a decline and acting on it. Financial news is produced continuously and is optimised for attention rather than for long-horizon decisions. Quarterly or annual review is sufficient for a portfolio designed for decades.

Everything above, in order of what to do first

1. The behaviour gap is measurable. Studies comparing fund returns with the returns actually earned by investors in those funds consistently find a gap.
2. A fall is not a loss until you sell. A decline in price is a change in valuation; the loss becomes permanent only when the holding is sold.
3. Falls are a normal feature. Substantial declines occur regularly across market history and are the reason equities have delivered a premium.
4. Write the plan while calm. A one-page statement of what you hold, why, and what you will do in a fall is the most effective defence available.
5. Reduce the exposure to noise. Checking balances frequently increases the chance of seeing a decline and acting on it.

The takeaway

Write down now what you will do in a thirty per cent fall. You will not think clearly then.

Small and repeatable beats ambitious and abandoned, almost every time.