This might be a naive question, but if ‘time in the market beats timing the market,’ why do massive sell-offs trigger stock market crashes?
Wouldn’t it make more sense for investors to stay in the market and ride the wave, even after bad news like the fall of Bear Stearns?
Or is this advice mainly for retail investors while the big players operate differently?
Some investors don’t have time to wait—they’re working with shorter timelines or immediate performance targets.
Mai said:
Some investors don’t have time to wait—they’re working with shorter timelines or immediate performance targets.
Exactly. Professionals are evaluated on quarterly or even daily performance, so they can’t afford to think long-term like retail investors can.
Mai said:
Some investors don’t have time to wait—they’re working with shorter timelines or immediate performance targets.
Also, it’s true for broad markets, but individual stocks can go to zero. If you see a company in trouble, it might be rational to sell before it’s too late.
People panic and act irrationally during crises.
Sam said:
People panic and act irrationally during crises.
And humans are mortal. Long-term strategies don’t always fit everyone’s timeline.
Crashes are driven by a mix of institutional algorithmic trading and emotional retail investors reacting to bad news. The ones who stay cool and rational tend to win over decades.
People aren’t machines—they’re emotional, and markets reflect that.
Fear. Plain and simple.
Arlo said:
Fear. Plain and simple.
I knew not to panic sell, but COVID scared me into thinking this time was different. I sold, waited, and missed the bounce back.
It’s a combination of herd mentality and loss aversion. People fear losing what they have more than they desire potential gains.
Leverage plays a big role. Margin calls force some investors to sell, and automated trading algorithms amplify the effect.
Most crashes are triggered by institutional investors, not retail. Watch Margin Call for a great dramatization of this.
The advice about time in the market works because most people—including professionals—aren’t good at timing the market. Those who consistently add to index funds over decades usually win.
Daily trading volume is dominated by algorithms and institutional traders. Crashes reflect short-term strategies, not long-term investing principles.
Investors have different goals. Long-term wealth creation favors staying invested, but capital preservation or immediate needs can lead to selling during downturns.
Crashes aren’t just about everyone selling—they’re about fewer buyers willing to meet sellers at higher prices. It’s as much about liquidity as it is fear.
A lot of selling is forced, like stop losses and leveraged positions being liquidated. These amplify downturns.