You can’t time the market. You have heard that, right? This is an accepted truism in the investment business. It is also a simplistic load of poppycock; sheer balderdash I say.
If we can’t time the market, then why do investors with the best track records keep cash on hand for a “buying opportunity?” You might argue that isn’t trying to time the market but is simply value investing. I don’t argue that it’s wrong, quite to the contrary, it’s very smart, but it is “timing the market” from my perspective.
Please don’t let me lead you astray. I am a big proponent of buy and hold, but I do want us all to re-examine our thoughts about our criteria for buying and selling.
Nick Murray is a fellow I’ve referenced before in my writings. He’s an advisor to financial advisors in the investment business. His book for clients of the financial advisor may be of interest to you. You can find it at: http://www.nickmurray.com/bkwealth.htm.
I have heard Nick speak and read his newsletter and some of his books. He preaches that you can’t time the market and makes his point thusly: “When do you buy? When you have the money. When do you sell? When you need the money.”
My job as a financial advisor is to get you, the client, to follow a plan of that ilk. There are, of course, other issues. First, you have to save some money, then you have to decide when you want/need to spend it. This is all part of that financial plan I’ve been harping on for most of the past two years.
The problem, and the ugly ramifications of trying to time the market, appears when those two emotional investment decision drivers come into play: fear and greed.
Too often fear and greed make investors, even the best and brightest of us, into complete dolts. Human nature makes us sell when the markets are falling (i.e., stock prices are cheaper and falling lower) out of fear we are going to “lose it all,”. It also makes us buy out of greed and fear that we may be missing an opportunity when the market is running to new highs out of.
I often tell people this is the only business where people shy away from buying when things are on sale, and people rush to buy when prices are at “an all new higher price!”
Today, stock markets in the U.S. have seen significant price increases since November of 2016. The uncertain world is even more uncertain today: Tomahawk missiles fired into Syria; demonstrations of military might in and around Korea. What will this do to the markets? Will they go up more this year or will they fall?
You know me well enough by now to know my answer to that either/or question is, “yeah, maybe.”
While that answer may not feel particularly helpful, let me give you another Nick Murray quote wherein he paraphrased the eminently quotable Winston Churchill: “A buy and hold investment strategy is the worst strategy known to man … except for all the others.”
So yes, I feel your pain (never mind who I’m quoting there). It’s an unsure world out there and there will be times we wish we had a crystal ball. If you want to be a market timer, then keep some cash on the sideline for rainy days – either days you need the cash to pay some bills or buy some bargains. Otherwise, plot your course and keep a steady hand on the tiller.