Should I Sell Everything and Wait for the Bottom

The temptation to sell everything and "buy back at the bottom" sounds perfectly logical in theory, but it requires you to be right twice -- timing both the exit and the re-entry perfectly. Almost no one achieves this, including professional fund managers with analyst teams and decades of experience.

Peter Lynch pointed out a striking fact: no market timer has ever made it onto the Forbes richest list. The wealthiest investors in history got there by buying and holding, never by jumping in and out. That should tell you everything you need to know about the sell-everything-and-time-the-bottom strategy.

Warren Buffett reminds us that despite two World Wars, a Great Depression, pandemics, and numerous recessions, the stock market has relentlessly gone up over the long term. The upward trajectory has been interrupted by countless crashes, but it has never permanently reversed. Moving to all-cash means you also need to perfectly time your re-entry, and research shows that most investors who sell in panic never buy back at lower prices. They wait, paralyzed by fear, until prices exceed where they originally sold -- missing the recovery entirely.

Howard Marks offers the correct mental framework: "You can't predict, but you can prepare." The solution is not predicting when crashes will happen and jumping out, but building a portfolio that can withstand crashes without forcing you to sell.

Seth Klarman echoes this with his margin-of-safety approach: if you buy businesses at prices well below their intrinsic value, temporary market declines become opportunities rather than threats. The problem is not the crash -- the problem is owning overpriced assets when the crash arrives.

Here is what to do instead of going to cash:

Your Action Plan

The Bottom Line

Preparation always beats prediction.