:: Life Of Dave ::

timing the market

I've been following international economics, in some form, for the last 25 years - my time studying abroad and then living abroad repeatedly has made me aware of the way several modern economies work, and frankly The Economist has kept me aware of how many fascinating things I don't know. Headlines like (this week's) "Investors cannot get enough of Chinese e-grocers" make me think 'I guess I should know more about Chinese groceries!'

In that time period, I've learned one very important thing: I can't time the market. I remember spending much of my time in France (2003-2005) expecting the dollar to crash. Really, really expecting it on a daily basis. 'This madness can't continue!' I said, every day, before confirming that it was continuing.

I was right. The market did crash. Two years later, for a reason I hadn't seen coming. It crashed, in fact, in a very big way. But by then I'd given up, decided Greenspan knew something I didn't, and moved on.

So here we are. Coming out of a massive global event. And we see headlines like today's "S&P 500, Nasdaq rise to record highs to start the week led by Facebook". Now, either economics doesn't work the way I think it does, or a lot of people started saving all their money and investing it in the stock market (and don't tell me the stock market isn't treated as savings by many people, specifically those at the higher end of the income ladder). Those who aren't putting their money in the stock market seem to be taking advantage of record-low interest rates to borrow money to buy houses, driving home prices through the roof (no pun).

(On the subject of record low interest rates, there's another area where I thought I knew something, and was proved wrong. When I refinanced my house back in 2010 or thereabouts, I said 'interest rates will never be this low again in our lifetime' to anyone who would listen. I refinanced again half a dozen years later, because interest rates were even lower. I could do it again today and come out ahead again because, you guessed it, interest rates are even lower.)

At some point interest rates will rise. The Fed says they'll do this when we reach full employment, which might or might not be when they do it - the inflation numbers have banks sounding the alarm (though they have a financial incentive to want higher interest rates, something that doesn't get enough discussion when bank heads make statements that scare the markets). We can expect lots of shifts in stocks when rates go up. There will probably be a mini-crash (or even a big one). There's a lot of money to be made by timing your sales and purchases.

But I'm not going to try.

All of the above is correct. The market will correct. Lots of money could be made. But I have learned that timing the market is a fool's game. I'm sure, with a laser-like focus on minute-to-minute news, one could get a more accurate picture. Well, I'm fairly sure. Maybe? But either way, that person benefiting from their amazing timing won't be me. I'll ride it out, trusting the power of long-term growth to save me. Someday I'll retire, and when I sell my stocks will really matter to my daily life. But I'm not there yet, and frankly, I'm not sure I'll do it right even when it really matters.