Investing in the stock market as a market timer is a loser’s game.
A good definition of a market timer is anyone making a trade or series of trades based on a prediction about the future. Market timers say things like…
“I think the market will continue to go down. I am going to get out now so that I don’t lose any more money.”
or “I think that we will see a rise in the market in near the future, so I will invest now so that I can capture those returns.”
Market timers will play for fast returns in the shorter term.
Truthfully it is VERY difficult for anyone to win by making the above decisions at the right time.
Think this through as I take apart another chapter of Enough by John Bogle. From chapter two…
As a market timer, in order to win, I must get out of the market at the right time and then subsequently get back into the market again at the right time (or vice versa). In order for me to do this, someone must be at the other end of the trades both times. Each time the losing party must be willing to make a trade with me at the wrong time (for them) because I have rightly predicted it to be the right time.
It is difficult to make even one timing decision correctly, but remember, I must do it twice in a row to make money once!
If the odds are 50/50 that I will get one of them right, then my odds are less than 25% to do it twice and make money on the “round trip.” Add this up over say a 20 or 30 year investing period. The chances that I am still beating the market after two or three trades is incredibly slim, much less over 2 or 3 decades.
DALBAR studies on investor behavior confirm this over and over when they calculate that the average investor nets less than a 5% return over time!
John Bogle counts himself as one who does not believe that market timing works, and I agree with him. In his almost 6 decades serving and working in the investing arena he says that he doesn’t know of anyone who can time the market successfully, nor does he know of anyone who has done it in the past. He adds, “Heck, I don’t even know anyone who knows anyone who has timed the market with consistent, replicable results.”
My conclusion today is that our financial system needs investors. People like you and me who know that business, when left to itself, will seek and make profits and grow in value over time.
We can invest in that activity and over time add a lot of value to our society and make a nice return in the process.
Make a decision today to leave the ranks of the market timing speculators who are losing a lot of money gambling for a quick buck on the changing prices of stocks.
Join me and the growing number of individuals who are returning to the discipline of investing and who are again placing their money in the hands of globally diverse businesses large and small, entrepreneurs who have for decades proven that it is possible to build value into organizations over time by meeting the needs and demands of the society around them and who will be rewarded handsomely for their investment.