Why I Don’t Time the Market

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I asked yesterday if you’re smart enough to time the  market.

Here are the reasons why I don’t time the markets.

1.  I have other priorities

To time the market you need to be up with everything happening on the markets, in the economy, and in foreign economies.  I simply do not have time to track all those factors, nor do I have the mental capacity to maintain all that information.  I would rather go out and play with my kids than to figure out how to earn an extra percent a year.

I am the epitome of a one track mind.  My personal motto: why think about something when you can obsess about something?  Because of this it is easy to become consumed with things.  My challenge is to be sure my time and energy are consumed with important issues like God, family, and ministry.

2.  Emotional Implications:

Timing the market can be mentally exhausting.  It’s up and it’s down.

In the 2008 Berkshire Hathaway Report, Warren Buffet shares on a timing mistake he made.

I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak.  I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.

He then goes on to say:

When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.

Buffet, who does not time the market, reveals that returns are not worth losing sleep over.  But did you know you can have your cake and eat it too?  Buying and holding typically out performs the average market timer (see below).

3.  Financial Implications:

This emphasizes why the results of the Dalbar Study are so powerful.

The average equity investor earned a paltry 2.57% annually; compared to inflation of 3.14% and the 12.22% that the S & P 500 index earned annually for the last 19 years.

Translation.  Over time, the average market timer performs poorer than the market.  Most investors in this 19 year time frame would have had a better return if they bought and held instead of getting out of the market when it was bad and getting into the market when it was good.  This is because the greatest enemy of successful investing is not the market, is not the economy, but it’s you!  Specifically, your emotions.

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