The average American spends more time researching what’s on TV tonight or their favorite team’s upcoming schedule than their investments. Some do what I call “buy and forget”, others listen to friends and own the latest fad stocks, and finally there is the group that trust someone else to make decisions like financial advisors.

The biggest reason people lose money in their investments isn’t due to a recession, the Federal Reserve or a “bear market”.  The reason they lose is really simple, they sell low! It is impossible to “time” the market, all the experts and talking heads on CNBC have no idea whether the market will go up or down in the short term. Short term being a day, a month or a quarter. In the longer run, stocks always go up, you just need to be patient and do a little homework. The problem isn’t as much buying high, it’s selling low based on your panic.

Take a look at the attached chart, it shows the market over the last 12 months (SPY is the S&P 500 ETF, commonly referred to as “the market”). The blue line is the SPY, the red line shows the 50 days moving average of the stock’s price.

It is easy to see that people who sold their stocks or funds in a panic, lost money. You can use any stock choice you want, the analysis is the same. You are your worst enemy, you sell or switch funds when the market goes down. I really pity the people who sold their stocks in 2008-2009 at the low points when the stock market was demolished. They then sat on cash, CD’s or bonds and missed one of the greatest rebounds in stocks in our lifetime. Along with your homework, time is the most important factor in your ability to make large returns on your investments.

Want some proof? Warren Buffet is currently worth about $73 billion is 84 years old. He made $70 billion of that after he turned 60 years old.  Your wealth will grow exponentially if you just follow some simple rules and don’t panic! Warren buys and sells based on fundamentals and investing in value. He buys low and sells (or holds) when the price is high.

In my next blog post I’ll give you some ideas when to buy and when to sell your investments.