A headline on page one of today’s Wall Street Journal reads “Rally Sends U.S. Stocks Into Black For the Year.” If that sounds unlikely, that’s because it seemed impossible just a few weeks ago. But, as I mentioned last week, you should always expect the unexpected.
In recent months, I’ve seen several articles claiming the end of buy and hold investing, many at reputable sites and newspapers. I’ve agreed with none of them.
You: Really?
Look, I’ve been disappointed by the significant negative impact the “buy and hold” strategy has generated on my portfolio over the last 18 months or so. However, I’m honest enough to admit that I wouldn’t have had as much money to lose in the first place had I not benefited from the exact same strategy over the several years leading up to that market chaos.
Unfortunately, many of my peer investors have abandoned the “buy and hold” investment philosophy. As many experts have correctly pointed out, to be successful as a market timer (the only other choice besides following the “buy and hold” approach and avoiding stocks entirely), you must be correct twice:
- When to get out of the market
- When to get back in the market
Personally, I don’t think anyone is that smart (or lucky.)
Yes, some people got out of the market a year or two ago, and other folks 9 months ago. Still others waited until February or March of this year before finally bailing. But if you got out of the market at any time and still haven’t yet got back in, you’ve missed something.
You: What could I have possibly missed? The market is still way down.
From it’s historic highs, it certainly is way down. But is that really the best measuring stick? As you probably know, the NASDAQ, for example, hit its high of over 5,000 back in March of 2000. Does that mean that it was a bad investment for every year since March 2000 (it’s currently at about 1,763.)?
You: Maybe.
Are you going to wait until it gets over 5,000 to invest in NASDAQ stocks again?
You: Should I?
How much time do you have?
You: Huh?
It could be many more years – or even decades – before we see the NASDAQ trading at over 5,000. In the meantime, the NASDAQ would have to more than double to get there. If you wait until the markets are at their highs, you guarantee yourself that you “buy high.” I’m obviously not into market timing, but you can see that such an approach would lead you to choose among the worst possible times to jump into a market.
With that in mind, here are the most telling statistics from the page one WSJ article:
Back on March 9, the S&P 500 and other indexes were at 12-year lows.
The S&P 500 has jumped 34% since then.
The S&P 500 is still down 42% from its record close on October 9, 2007.
Two questions for you:
- Did you sell everything on October 9, 2007?
- Did you put all your cash back to work on March 9, 2009?
If you can answer yes to either one of these questions, please consider:
- Donating part of your fortune to a worthy cause.
- Stopping lying.
Keep in mind that just because I advocate “buy and hold” investing, it doesn’t mean you can ignore the markets. Choosing an appropriate asset allocation is critical as is annual re-balancing. You can choose to receive assistance in managing your money, but you can never delegate total responsibility. No one will ever care about the size of your portfolio and the risk associated with as you do.
Thoughts?
Tags: market timing, S&P 500
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