June 6th, 2026
Memo from the CIO
“Buy low. Sell high.” We all know what we’re supposed to do, but few actually do it. In fact, most investors consistently do the opposite. So why is it that average investors are inclined to shoot themselves in the foot by selling lows and buying highs?
If you don’t believe investors consistently sell lows and buy highs, we’ll refer you to the well-known Dalbar study which demonstrates the underperformance of the average equity investor versus the S&P500 Index. Here’s a 5-year chart of investor underperformance versus the index:
2025: (0.72%)
2024: (8.48%)
2023: (5.50%)
2022: (3.06%)
2021: (5.27%)
It’s hard not to notice that the average investor isn’t just underperforming by a little bit: they’re massively underperforming the market. There’s a simple explanation: the average investor isn’t especially alarmed by a small period of underperformance, but large drawdowns create palpable fear which disables the human limbic system, and all too frequently results in emotional rather than rational decision making. In other words, our innate fight or flight mechanism compels us to lock in paper losses when they are at their very largest. The damage to long-term investment performance is often irreparable. And to compound the issue, proceeds from the sales are often redeployed to the market’s most overpriced securities.
It’s understandable why retail investors might act in this fashion. Valuing and monitoring a business is a difficult process, one beyond the scope of most casual investors. Investors therefore interpret stock prices as accurate representations of the value of a business. The low price itself becomes the sell signal, rather than the buy signal it might otherwise be. That in fact is the greatest irony of all, and why those of us who see the tape as a tool rather than a gauge sit at an advantage.
Some very smart investors have quibbled with the Dalbar study and the remarkable underperformance it demonstrates. They point out that there is a class of investors that does – at the very least – outperform other average investors. They’ve observed that those who do outperform are those employing a strict, rote process of additions and withdrawals; such as those who follow disciplined dollar cost averaging strategies or those making prescribed 401K contributions. This observation, however, only enforces the Dalbar conclusion that emotional bias is at the root of investor underperformance. These investors have merely showed the wisdom to subvert a primal impulse by adhering to a strict methodology.
Essentially there are three ways an investor can shut off price signal as an alarming factor: Employ a rote process as described above, outsource the decision-making process to a competent third-party manager with full awareness that price signal is irrelevant, or develop detailed knowledge of business valuation and individual businesses. For those of us who are inclined to focus on business valuation, low prices are always looked upon as refreshing opportunities rather than a reason for alarm.
-AP
