Does Anybody Really Know What Time It Is?
I wish I had a nickel for every time someone has asked me over the past 35 years if this is a good time to invest. When someone asks me that, what they are really wanting to know is if I think the stock or bond market is too high and ready to some back down. Or they may be searching for an answer to a larger macroeconomic question about if I think the economy is heading into a downturn. They are really trying to time the financial markets and not invest at a time when prices are high and possibly getting ready to head lower. This mistake is almost a cousin to Mistake 5, Chasing Returns.
There are hundreds of websites and publications that you can subscribe to that say they can tell you when to invest; when to get out and even what to invest in. You can see articles in financial websites that proclaim “So and so predicted the last bear market! See what he’s saying now!” I remember back in the 1990’s there was one particular “expert,” who shall go unnamed that was predicting the Dow Jones Industrial Average would soon reach 30,000. In 1995 the Dow crossed 4,000 for the first time. Now, it turns out this expert was right because the Dow did reach 30,000. It happened November 3, 2020!
What makes timing the markets so hard, is that you have to be right twice. First, you have to be right when you get out. Then you have to be right again on when you get back in. Typically, the average investor is rarely right on either. Most investors seem to miss most of the up move yet stay in through most of the down move. I can think back to the late 1990’s when technology stocks were hot. Investor’s kept pouring money into anything tech. A lot of companies were startups. Some had no products developed or even a business plan. It didn’t matter as investors literally didn’t want to get left out, so they threw money at this sector. So much so, that is spurred then Federal Reserve Chairman Alan Greenspan to term it “irrational exuberance.” As these start up tech companies went out of business, investors continued to hold on in hopes of a turnaround, which in many cases never came. With their “irrational exuberance” they bought high and couldn’t bring themselves to sell, even as prices declined.
Because investing is a long-term commitment, I’ve always believed that a successful investor needs two characteristics. Patience and conviction. Patience is required because investments do go up and down and you need to ride through the hard times. Conviction in your strategy is important so that you don’t fall victim to all the noise out there telling you what to do.
Rather than trying to time the financial markets, I have found that developing a portfolio of diversified companies and industries, reinvesting dividends, and adding to those investments as funds become available seems to be a good strategy over the long term.
So, does anybody really know what time it is – the best time to invest or the best time to get out? I doubt it.
These are the opinions of Legacy Wealth Management, LLC and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.
Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.
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