In a 1945 letter to investors, John Templeton discusses the importance of planned investment. In this section of the letter, he discusses how many people underestimate the strategy of an investment program, and he reminds us (even today) of the volatility of the market:
Many people act as if the selection of particular stocks and bonds is about all there is to the problem of conducting an investment program. Of course, the element of “selection” is important. A carefully thought out method for weeding out overvalued stocks and replacing them with undervalued stocks does produce profits. But the backbone of an investment program is the question of “when to buy” and “when to sell”. The first step in planning is to divide the stocks and equities on the one hand from the cash and bonds on the other. The second step is to think out and adhere to a program for shifting out of stocks when they are high and back into stocks when they are again quoted at bargain prices.
The stock market always has been, and always will be, subject to wide degrees of fluctuations. When prices decline farther and farther, it is only natural human emotion to become cautious. Investors, who have no pre-arranged plan to guide them, only fail to add to their stock holdings at the lower levels (sometimes because they have nothing left to buy with) but too frequently they add to the downward pressure by selling out part or all the stocks they own. Conversely, at other times, stock prices are pushed up far above real values by the understandable human tendency to buy when businessmen and friends are preponderantly prosperous and optimistic.