Stay the Course During Market Volatility

Tom Putnam, our Founder & Chairman, has a saying, “You have to be aboard the train before it leaves the station.” His analogy pertains to investing — particularly folks who believe that they can time the market. Market timers hope they can catch the market at its highest or lowest point in an attempt to maximize returns and often let their emotions get in the way of rational decision making. They become fearful and sell when they should buy. The typical result is that they miss market upswings and their gains are much less than what they would have been if they had just stayed the course.

Many investors find it difficult to achieve their financial goals for a number of reasons. Unexpected and uncontrollable events can wreak havoc on a financial plan. But often it is the investor’s own actions that cause them to fall short of their investment objectives. The investment environment comprised of academicians, practitioners, pundits, and the financial press is complicit in steering the investor to turn to diminishing behaviors such as market timing and performance-chasing.

Time in the Market — Not Market Timing

The reason an investor would want to try to time the market is to accomplish dual goals: preserve capital and achieve outsized returns. Moreover, the investment environment not only validates market timing, but leads investors to believe that they can and should be doing it.  Additionally, investment newsletters tell subscribers when to “get in” and “get out” of stocks, bonds, and other assets. Yet financial markets are inherently unpredictable and there is overwhelming evidence that not only does market timing not work, but it diminishes long-term returns. Data shows that long-term investing, even through a stock market downturn, yields better results over the years than trying to time a decline, park capital on the sidelines, and return when “things are better.”

Avoid Performance-Chasing

Investors are also compelled to chase performance: to sell funds (fire managers) that are underperforming and buy those funds (hire managers) that are outperforming. However, performance-chasing may actually be a hindrance to capital appreciation and wealth building. Buy-and-hold takes a great deal of discipline and patience, both of which are in short supply in today’s investment environment. And while performance-chasing sounds plausible, it relies on a shaky premise that the past can predict the future. There is a good reason why investment managers are required to include the disclaimer “past performance is not indicative of future results” when presenting investment returns.

What about Market Drops?

Fenimore Asset Management, the investment advisor to FAM Funds, embraces periods when the stock market declines and is prepared for them because we seek opportunities to invest in high-quality, well-managed businesses at a discount to our appraisal of their intrinsic value. We use volatility to strengthen our portfolios for the long term.


How should investors steel themselves against internal and external temptations to attempt to time the market or chase performance? As advisors know all too well, having a comprehensive, understandable investment plan is foundational; it is hard to stay the course if you don’t know the course. Of equal importance is to be patient and ignore what others are doing. Ultimately, long-term wealth building requires discipline and an ability to remain steadfast so that self-defeating behaviors are avoided. It’s our observation that, over time, stock prices should follow the earnings growth of businesses, regardless of inevitable short-term market fluctuations.

Please see Fenimore disclosure.