Since Market Timing is a Waste of Time, Why are you Still Trying?

I read a Facebook post asking what people were doing about the recent market drop. As much as I watch the market (very rarely), I didn’t know the market had dropped until I read that comment. This question was raised on a site that is constantly teaching people that there is no way to time the market. Those who follow that site always agree with this concept, until the market drops, then they sing a different tune.

Why can’t people follow their convictions when the rubber meets the road? Since there is no way to time the market, there is no point in spending precious time following the market. The only reason to follow the market is to be watching for the right moment to make a move, which is the definition of timing the market. If a person is watching the market every day or every week, they still don’t really believe that timing the market isn’t possible. It is time to act like we believe that statement to be true. Here’s how. (Stick around to the end for some of my favorite market timing quotes.)

People are constantly asking the question; is now the right time to (fill in the blank)? Whether the market is falling, rising, or flat, I hear that question. The question is most frequently asked regarding buying houses, refinancing houses, or buying and selling stock.

The implication of this question is that someone has the ability to predict the future. Since no one knows when the market is at its top or bottom, or when interest rates are at their highest or lowest, or when house prices are at their upper or lower limit, please stop trying to predict the future. You can’t, I can’t, and neither can anyone else, so stop asking if now is the best time for one of these events.

If you have asked any of the following questions in the last few years, then you are still trying to time the market.

“Mortgage interest rates are down to 3.5%, is now a good time to refinance my house?”

“I just got a lump sum of money and want to invest it. Is now the right time to invest? Should I invest it all at once or spread it out to get dollar cost averaging?”

“Should I move to a bigger cash position now?”

“The market seems a bit volatile, should I wait to invest?”

“Housing seems to be at a peak, I think we will wait to buy a house until after prices come down.”

“Since the government is about to cut interest rates, shouldn’t I use an adjustable rate mortgage so my interest rate will go down when the market changes?”

“I would like to buy my first rental property. Should I wait until after the market correction?”

It is always the right time to buy mutual funds and houses, since both of these items should be purchased for the long haul. Where the market is when the purchase is made is negligible. If you are price sensitive, you are trying to buy for the short term which often doesn’t work and is very risky.

Mutual funds and houses are not to be bought for the short term. That is called gambling (market timing) and is the reason residents should never buy houses, they should rent. We shouldn’t be gambling with our future, we should be investing for our future. That means thinking long term. In the long term, buying is always the right answer. Whatever the current market, 30 years from now it will be higher.

I learned long ago that I was not able to time the market. I once did a stock picking exercise with my seven year old son to teach him about the market. His chosen portfolio outperformed mine by a big margin. I also noticed that my account with limited investment options, which was used as a buy and hold account, outperformed the account I used to make “smart” stock picks. Once I finally proved to myself what others had been trying to teach me for a long time, I finally got the message and stopped wasting my time trying to time the market.

Since I no longer follow what the market does, the stock market was down for a few weeks before I knew it had a downturn. Nothing was different in my life for not knowing. I wasn’t planning to make any financial changes with the information, so I no longer waste any of my precious time following the market.

Consider the following before deciding to invest:

-Am I investing for my future? If the answer is yes, then it is the right time to buy.

-Set up your retirement account to make automatic purchases with each paycheck.

-Make the purchase an index fund in the market of your choice.

-If you are also buying bonds, pick a bond mutual fund that will be automatically purchased with every paycheck.

-Don’t constantly look at your portfolio, be patient and let the investments grow.

There will be times that the market drops. Don’t look at your account balance, because there is nothing you will be changing due to a change in the market. When the market is down the stocks you are buying automatically are being purchased at a lower price.

There will be times that the market is hitting a new high. Again, don’t look at your account balance, because there is nothing you will be changing. Just continue making your same long term investments.

As busy professionals, we do not have the time to be fussing about things we can’t do anything about. We should spend our precious free time with our family or having fun with our hobbies, not worrying about the state of the market. In the long run, those who worry and watch the market closely, who are continually buying and selling will usually end up with less money in their account than those who put their finances on autopilot and enjoy life.

When you know you don’t need to worry about the market, you can rest easy. I was recently hiking the Camino de Santiago and was, for the most part, off the grid for 6 weeks. No phone, no TV, no internet except to keep up with my email, post some pictures, and respond to followers in the evenings. I didn’t once think about my retirement plan holdings during that hike. That is freedom.

What if I was hiking and worrying about the market, but couldn’t do anything about it? What a waste of energy that would have been.

Those who are worried about the market, are not free. They are a slave to the market. The market is deciding if they will have a good day, or need to rush to buy or sell stocks. Don’t be a slave to your portfolio.

Make a decision that once and for all you will stop playing the “time the market” game. Then stop looking at the market. Act with the conviction that you know you can’t time the market and neither can anyone else. You won’t believe how freeing that is to not care what the market does. Set up an automated path to wealth and then stay on track. Ride out every storm and live a full life without worrying about the market.

Set and forget is the best plan for your investment accounts. When something changes in your life, then you can revisit the plan. One change that creates a need to revisit our plans is retirement. Once that starts, we go into a new mode and set in place a new plan to remove money rather than invest money. But once the new retirement spending plan is set up, then quit looking and trust the plan.

One of my favorite quotes from Warren Buffet is:

“Our favorite holding period is forever.”                        

That attitude will create a great freedom in your life. If your holding period is forever, then you will never need to look at your holdings again. If you are looking for a reason to sell, you are timing the market. Time to grow up into your adult investing self and stop trying to time the market. Your future self will love the extra time and peace of mind it creates.

How about your investing self. Do you say, “it’s impossible to time the market,” yet watch the market closely? Are you ready to stop the madness? I’m glad I did. I’ll leave you with some great quotes about market timing.

“The only value of stock forecasters is to make fortune-tellers look good.” – Warren Buffett

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch

“Only liars manage to always be out during bad times and in during good times.” – Bernard Baruch

“Whenever some analyst seems to know what he’s talking about, remember that pigs will fly before he’ll ever release a full list of his past forecasts, including the bloopers.” – Jason Zweig

“The average investor’s return is significantly lower than market indices due primarily to market timing.” – Daniel Kahneman

“The stock market serves as a relocation center at which money is moved from the active to the patient.” – Warren Buffett

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson

“The only way to make money with a (market timing) newsletter is by selling one.” – Malcolm Forbes

“There is absolutely no evidence that anyone can time the market.” – Bill Bernstein

“42% of millionaires of this country make less than one transaction per year in their investments.” – Bill Schultheis

“If you are not going to stick to your chosen investment method through thick and thin, there is almost no chance of your succeeding as an investor.” – Chandan Sengupta

“Forget trying to time the market and do something productive instead.” – Gerald Perritt

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11 thoughts on “Since Market Timing is a Waste of Time, Why are you Still Trying?”

  1. What’s funnier is the new grads who buy a 500k house and check stocks every ten minutes when they only have 20k in.

    Meanwhile the value of their house is fluctuating 25x more; they just don’t look because they aren’t planning on selling the house!

  2. Thanks for the reminder, Dr. Fawcett! I’m with everyone who says they know you can’t time the market, but must confess to having asked some of those questions to myself a time or two.

  3. I am trying to emulate Fidelity’s best investors, who avoided timing the market by either dying or forgetting they had the accounts.

    Preferably by emulating the latter.

  4. So I don’t think we can time the market. But can we value the market?
    Do valuation and trends matter at all?
    For instance if dividend yields are low and PEs are high and the trend is up for 10 years, doesn’t reversion to the mean kick in at some point?
    Maybe we shouldn’t be all in cash now. But maybe some of us emotional humans shouldn’t be 100% in stocks now either?
    Ben Graham recommended 50% 50% as the default. Lower in stocks when PEs are high. Higher in stocks when PE is low.
    Thoughts?

    • Well said Wealthy Doc. Analogous to your point, international markets have underperformed US markets for 8 1/2 continuous years now. Certainly over the medium-(if not shorter-)term, a rational investor would expect a downturn in US markets. Looking at graphs, these periods of outperformance (US vs foreign) go in continuous cycles, rarely changing back and forth after one or two given years. In fact, the average cycle of outperformance/underperformance lasts 7.4 years. In order to ‘stay in the game’ despite the high domestic valuations, I am now invested in a very high % of international equity (and bonds and real estate). I agree that if one is prepared to wait it out, this can better be described as medium-term valuation investing before rebalancing after a downturn. Can US markets outperform for, e.g., 20 years? I guess it’s possible, but at some point it seems prudent to use these stats to tilt the probabilities in your favor.

      • IMdunDDS, If someone is trying to use stats to “tilt the probabilities in your favor,” they are trying to time the market. Yes the US will not be able to outperform for 20 years, but no one knows which will be the next hot market. None of us can predict where to move next. So just pick a solid plan and follow it. Using stats to tilt the probabilities in your favor is why there are so many actively managed funds. Everyone thinks they can time the market, but the stats on that do not tilt in their favor.
        Thanks for your comment and the discussion.

    • Wealthy Doc, Anytime you alter your investment plan, based on the current market conditions, you are trying to time the market, no matter how you word it. If you “value the market” at a high price and then pull back your investments in equities, you are trying to time the market. Then what day do you make the move? And what day to you come back in? If you move too soon, you lose a big run up to an even higher value. My point is to have an investment plan, and stick to it. It should be good in both good and bad times. Then you won’t be tempted to make changes when everyone starts talking about the market high or low at the current moment. Lots of people say they don’t time the market, but then they actually make changes in their investments based on current market conditions, but they don’t call it timing the market. I don’t even look at the market anymore since my investing is not based on the current market.
      The problem with the concept of “reversion to the mean” is that yes it will happen, at some point, but no one knows when that point will be, so stop trying to guess and just follow your investment plan. If you are one of those emotional humans that feel you should not be in 100% stock right now, then you should not be in 100% stock ever, because you will not be feeling good in some markets. Ben Graham is proposing market timing, just with different words. If you are investing differently when PEs are high vs low, you are trying to time the market.
      Those are my thought.

  5. Timely article for today’s world. Where The markets can move up and down based on tweets. All of it is just noise to the long-term investor. I believe in a diversified long-term investment strategy over trying to time the market.

  6. Well said Cory. I often find it interesting as well that everyone admits timing the market is a fool’s game (in which you have to be right twice, selling at market high and then buying market low) yet still say they have “cash on the sidelines,” meaning that they will deploy this cash when they feel there is a buying opportunity.

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