In 2020 and 2021, despite the pandemic raging all around the world, the equity markets were having a good time. But in 2022, many investors have become panicky and emotional with the roller coaster ride. Many investors are trying to trade in and out, engaging in market timing to beat the volatility. Investors should control this market timing impulse because in the long term whether you invest is more important than when you invest.
Let’s look at some investing truths that could be helpful.
TRUTH # 1: THERE ARE ALWAYS (SHORT) PERIODS OF POOR RETURNS TO RIDE OUT IN ORDER TO EARN LONG-TERM MARKET RETURNS.
The equity market does not rise unhindered all the time. There are always ups and downs. If you are investing for a long-term project such as retirement or education, stay invested. Don’t be tempted by poor advice like market timing. Long-term returns are more relevant for such projects compared to speculating. By the way, you would mostly lose engaging in speculating.
TRUTH #2: YOU CAN’T PREDICT THE FUTURE
Nobody has a crystal ball that could accurately predict the future, not even those so-called sophisticated methods of this graph analysis or that technical analysis. Timing the market is a losing proposition.
These are what some well known and successful investors and economists have said…
- We’ve always felt that the only value of stocks forecasters is to make fortune tellers look good – Warren Buffet
- There are 2 types of forecasters, those who don’t know and those who don’t know they don’t know – John Kenneth Galbraith
- If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what`s going to happen to the stock market – Benjamin Graham
TRUTH #3: MARKET VOLATILITY AND RISK ARE NOT THE SAME THING
Don’t confuse ourselves with these two. Before starting an investment journey, make sure you know your time horizon and your investing goals. Measure the results based on these, the time horizon and the investing objective before making adjustments. Don’t measure it by days or months. Most permanent investing losses are actually self-inflicted. Permanent losses resulting from emotional decisions or selling at inopportune time are more damaging than market volatility.
There is a great difference between investing and speculating. If you have to speculate, speculate with money you can afford to lose. Building wealth requires plan, patience and “time in the market” not timing the market.
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Adapted from an article written by Daniel Kern, CFA, CFP. Daniel Kern is the Managing Director and Chief Investment Officer of an investment management firm.