Cocktail Economics: Discovering Investment Truths from Everyday Conversations

Chapter 3. Dressing Appropriately for the Stock Market: The Potential Payoffs of a Switching Strategy

You don’t often see bikinis on ski slopes or winter coats on tropical islands. But if you’ll allow these landscapes to stand in for contrasting stock markets, you see such unfortunate dressing decisions all the time. Take that millennium stock market bubble, which “popped,” as they say, in 2000. Before this correction, to continue the analogy, passive investors were stuck wearing their parkas while the sun was shining—they stood still, frozen in their buy-and-hold investment plans while the money-making action was hot. After the pop, however, many active investors were caught in the cold wearing nothing but their bathing suits, exposed to the ...