Trading in a Volatile Market

I stumbled upon this Jack Macke post the other day:

If you bought yesterday and sold today, you weren't "early." You were wrong. You gave into a perfectly natural and insanely expensive instinct. You paid full price the day before a sale. If you're selling into this mess, you're also wrong. You're dumping into the panic, which is horrible investing or trading.

Aside from the humorously NAR-esque, “It’s a bad time to be a buyer or a seller!” message here – this post actually provides us with a teachable moment.

1. If you bought the day before a big sell-off, yes you were wrong.  But this is also called hindsight-bias – because there is an implication that you should have known yesterday that the market was going to sell-off today.  That is impossible.  If Mr. Macke knew that the market was going to sell-off tomorrow, he could make a fortune shorting it – but of course he didn’t and he won’t.  Put simply, nobody knows nothing.
2. Making mistakes happens a lot and owning up to them is critical.  But refusing to sell today because you bought yesterday is bad advice.  Remember, outperformance is the key.  If you can sell at any time (regardless of what you paid) and buy-back at a lower price, you are a winner.