Why trying to time the market isn't the best investment strategy - in fact it's not a strategy at all.
If 2016 taught us anything, it’s the importance of not trying to time the market and not letting so-called experts or pollsters talk you into trying to time the market.
Exhibit A - January 2016 Economists, financial writers and so-called experts had high hopes going into 2016. And then the markets gave us:
Did you sell your equity positions on January 21st because you thought the market would continue to crater? If you did, then you missed the Dow skyrocketing over 1,000 points between the lowest point on January 20th and the end of January.
Exhibit B - November 2016 Election Remember that almost all the polls said Hillary would be our next President? And remember what virtually all the so-called experts and journalists said would happen if Trump was elected? They said the stock market would go way down – maybe even crash – because it hates uncertainty.
And on Election night, markets around the world were falling as Trump racked up Electoral College votes. Japan’s markets were off by about 5%, Mexico’s peso was getting hammered and the US futures market was down by about 800 points.
So, did you again sell your equity positions on November 10th, right after it became clear that Trump would be the next President? If you did, you missed the Dow skyrocketing 1600 points from Election Day until the end of the year, closing in on that 20,000 milestone.
Would this have made you mad?
Imagine if you:
Let’s use real numbers in this scenario: Your $1,000,000 at the beginning of 2016 year is worth about $900,000. Everyone else that stayed in the market saw their $1,000,000 grow to $1,120,000. That’s a $220,000 difference or the price of a modest home!
While I will admit that market is not inexpensive currently, you should always build your investment portfolio for the long-term (assuming you have the time), and be well diversified accross mulitple asset classes. So when the next market downturn happens - as it will - you have the opportunity to take advantage of the opportunities that will present themselves.
Make 2017 a great year!
Paul R. Rossi, CFA