Editor's note: Investing is a "loser's game," which means your biggest goal isn't winning...
Today, we're continuing our holiday series with a valuable essay from our very own Brett Eversole. In this piece – which we've updated since its last run in August 2024 – Brett explains what's far more important than seeking big gains... and the discipline that will keep you from destroying your long-term returns.
Also, our offices will be closed tomorrow and Thursday for Christmas, so we're taking a short break here at DailyWealth. We'll pick up our normal schedule on Friday, December 26. We hope you enjoy the holiday!
Finding good investments isn't the hard part... The hard part is not screwing up.
That's because investing is a "loser's game." And that means skill won't always lead to success.
In fact, in a loser's game, you shouldn't focus on trying to win. You should focus on minimizing mistakes.
Amateur tennis is the most famous example of a loser's game...
Hitting the ball across the net is no easy feat when you're new to the sport. As players get a bit better, they want to hit shots the opponent can't return. That's where it gets tricky, though.
The more difficult the shot, the more likely the player is to make an "unforced error" – like hitting the ball out of bounds. You start trying to play like a pro, but you're not ready for it yet.
The best amateur tennis players know not to focus on playing harder. The easiest way to win is by avoiding mistakes and letting your opponent make those unforced errors.
That's how you beat a loser's game... Go easy, and don't make mistakes.
Investing is a type of loser's game, just like tennis. If you want to earn great returns, you need to keep your emotions in check...
Panic-selling is one of those classic mistakes. And a lot of folks made that unforced error when fear spiked due to tariff fears earlier this year.
Hopefully you avoided this trap. The market has already recovered most of its losses. And history shows this type of recovery is normal.
What's more, as I'll explain, selling after a bad day is one of the worst things you can do as an investor. It's a swift way to cut your long-term returns in half – or worse...
The Hidden Cost of Panic-Selling
Fear took the reins in early April 2025 when the S&P 500 Index lost 12% over four trading days. That left the index down 19% from its late-February high.
The fall coincided with a massive spike in the CBOE Volatility Index – the market's "fear gauge." And everyone wondered whether a new bear market was beginning.
I'm sure plenty of investors took the bait and sold as the mayhem unfolded. It probably felt like the right call at the time.
Selling in a tense moment means you've stopped the bleeding. It feels like you're protecting yourself. But here's the problem...
Panic-selling is the easiest way to destroy your long-term returns.
To see it, let's imagine you sold stocks every time the market had a bad day. Then, you waited two weeks for the dust to settle before buying back in.
Over the past 30 years, stocks have fallen 2% or more in a day about 4% of the time. We'll use that as our threshold. So after every daily loss of 2% or more, say you sell stocks and sit out for two weeks. Then you buy back in.
This idea might seem reasonable. It allows you to take a breather in rough times. And you know exactly when you're buying back in.
Still, reasonable or not, it's a horrific investment strategy.
The S&P 500 went up 8.3% a year over the past 30 years. If you'd followed this strategy, your returns would have dropped to just 3.8% a year. That's massive underperformance. And it compounds against you over time.
If you'd invested $10,000 in the S&P 500 30 years ago, it would have grown to around $111,000. But with a panic-selling strategy, your $10,000 investment would have turned into just $31,000.
Said another way, if you consistently panic-sell, your long-term returns would be 72% less than if you'd just held stocks through the volatility.
The problem with panic-selling is twofold...
First, you spend more time than you might expect out of the market. This strategy would have left you uninvested about 21% of the time over the past 30 years.
The second problem is worse. Markets tend to rebound quickly after bouts of volatility. So if you panic-sell, you're missing those recoveries.
We saw that recovery in action after the tariff sell-off earlier this year. Stocks took only four weeks to make up their losses. And six weeks after stocks bottomed, they'd rallied nearly 20%.
If you'd panic-sold, you would have missed out on those gains.
Successful investors understand that they're playing a loser's game. It's not about making the best decision every time. It's about always avoiding the catastrophic mistakes.
Panic-selling is one of those mistakes. I hope it didn't get you earlier this year. But if it did, you don't have to make the same mistake next time.
Decide on your strategy in advance and stick to it... even when emotions are running high. Your portfolio will thank you for it.
Good investing,
Brett Eversole
Editor's note: While millions of regular folks have clung to safety and missed the artificial-intelligence boom... the elite have swelled their holdings to $52 trillion. But here's the good news: It's not too late to catch up. That's because of an upcoming phenomenon that Brett says could soon send $7.4 trillion pouring into select stocks... And today, you can learn the No. 1 stock he says you should own to prepare.
Further Reading
"Markets hate uncertainty," Brett writes. The recent government shutdown created plenty of uncertainty... But history proves that stocks perform well when the government reopens. In fact, we can even expect double-digit gains over the next year.
"The problem is, most individual investors don't understand risk at all," Dr. David Eifrig says. Poor risk management is another common trap investors face. But if you want to succeed in the markets, you need to understand what risk is – and have a solid exit strategy in case a trade goes sour.