Good morning & happy Monday!
“The odds that you will achieve long-term success by actively trading or timing the market round to zero.”
– Morgan Housel, author.
A few weeks ago, I addressed the issue of how the stock market works, but I got long winded (I know … shocking 😉) and ran out of time to discuss market timing, a very important topic.
So, let’s dive in today. 😊
The elusive market timing argument is one that I’ve heard about my entire career. It is very appealing and if it could be truly implemented it would be unbelievably profitable. But it’s a trick. It cannot be done, even amongst the most skilled investors ever to exist. Period. So, my advice on the market timing principle is quite simple … don’t even try.
Wow, for me that was quite brief😉. I spit out the main point right off the bat. For those who have interest I will expand a bit further.
We all understand that stocks go up and down. Nobody likes it when stock values are going down, everybody likes it when the stock prices are going up. This is just human nature.
So, human nature will also try to convince us something along the lines of “how about I just get out before the stock market drops and then I’ll get back in when the stock market starts to go up again.”
If you can figure out a way to do that, I’m all for it. But it just simply cannot be done with any level of accuracy or consistency. You may get lucky every now and then, but market timing is not a game worth playing.
In order for anyone to win at that game we would need to be right two times, each time. You would have to be able to determine when stocks are at their highest point so you can sell, and then when they are at their lowest point so you can buy. And you would have to do that for each market cycle.
It’s simply not doable.
Warren Buffet, frequently referred to as one of the wisest investors of all time, has much to say about market timing:
- “Only an idiot tries to time the market.”
- “Time in the market is more important than timing the market.”
- “I can’t time stocks – I don’t know anybody else who can either.”
- “With a wonderful business, you can figure out what will happen; you can’t figure out when it will happen.”
The last 90 days are a perfect example of this. You know how I love examples 😊
89 days ago today, February 19th, the S&P 500 hit an all-time high of 6,144.15. Then from February 20th – April 8th we saw a drop of almost 19%, with the S&P 500 closing at 4,982.77 on April 8th.
Did anyone think on February 19th, “Hey, I think today is the market peak, it’s time to sell and sit on the sidelines for 49 days. I will reinvest on April 8th when the market is at its lowest point in this cycle.”
See how unbelievably preposterous that is?!? Who the heck could do that? The answer is no one.
During the latter stage of that 49-day period I fielded a few client calls where the question was something along the lines of, “Should we bail from stocks just until the storm settles down?”
My answer was a firm and consistent, “No.”
Why? Because that is veiled market timing. We would be deceiving ourselves into thinking we knew when the stock market would be at its lowest point. You don’t know that, I don’t know that, and nobody knows that.
So, what the heck are we as investors supposed to do?
The answer is both simple and hard. Be patient. Let the storm come and let the storm go.
On Tuesday last week (May 13th) the S&P 500 closed at 5,886.55, which means it’s now positive for the calendar year.
Here’s the absolutely crazy thing … January 1, 2025 the average tariff rate across all U.S. imports was 2.5%, it went to as high as 28% in mid-April when the market was panicking a bit, and today they are at 17.8%.
So, we have gone from a tariff rate of 2.5% on January 1st to 17.8% in mid-May and the stock market is higher now than it was to start the year.
Nobody who tries to time the market would have figured that.
Which is why we don’t try to time the market my friends.
Trying to time the market is a fool’s game … and we are no fools 😊
It is truly a tremendous privilege to serve you. Please never hesitate to reach out if we can support you further.
Make it a great week ahead.