Yesterday U.S. stock market finished flat. The S&P 500 stayed around 2,000, edged up 0.10%. Trading was the slowest for any full session this year. The question for vast majority of traders now would be “is this consolidation a bargain buying opportunity or not enough yet?” They want to pick up the lowest tick of a chart and looking for a perfect timing moment. Wrong, the timing the market is a fruitless effort. The perfect market timer doesn’t and can’t exist. There is no crystal ball or a magic formula that allows for perfect market timing.
I am neither a perfect timer Nostradamus. I do believe that looking for a perfect market set-up equals with Astrology. If you are looking for a perfect buying opportunity usually two typical things happen.
Firstly, you are just watching and follow with your eyes the rally and crying each day why are you out. Secondly, everybody is in already around you and you are frustrated that each day you are loosening if you are out, so wait and wait for a correction which doesn’t come and finally you will buy at the top. History tells us how this attitude ends always, in tears.
As Peter Lynch stated about market timing is sobering: “People spend all this time trying to figure out "what time of the year should I make an investment? When should I invest?" And it's such a waste of time. It's so futile. I did a great study, it's an amazing exercise. In the 30 years, 1965 to 1995, if you had invested a thousand dollars, you had incredible good luck, you invested at the low of the year, you picked the low day of the year, you put your thousand dollars in, and your return would have been 11.7 compounded. Now some poor unlucky soul, the Jackie Gleason of the world, put in the high of the year. He or she picked the high of the year, put their thousand dollars in at the peak every single time, miserable record, 30 years in a row, picked the high of the year. Their return was 10.6. That's the only difference between the high of the year and the low of the year.”
Number of folks would imagine that only catching the lows would create a huge performance advantage versus the random timers. I bet many of you assumed buying only at the highs would create losses, but statistically proven it is not true in longer term. Surprising? Yes, it is.
All in all, don’t waste your time and energy looking for the best timing and perfect opportunity, just buy it with a reduced position size and wait for the reaction of Mr. Market. If the market is in your favour you can add more any time, it is a free world.
The BFM Assets Team.
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