Attempting to Predict the Unpredictable

Timing the market isn't the best investment strategy


If 2016 taught us anything, it’s the importance of not attempting to time the market and not letting so-called experts or pollsters talk you into trying to time the market.

Exhibit A – January 2016

Economists, financial writers and so-called experts had high hopes going into 2016. And then the markets gave us:

  • The worst five-day percentage loss to start a year on record, going all the way back to 1897
  • A decline of over 1600 points – almost 9% – from the beginning of January through January 20th

Did you sell your equity positions on January 21st because you thought the market would continue to crater? If you did, then you missed the Dow skyrocketing over 1,000 points between the lowest point on January 20th and the end of January.

Exhibit B – November 2016 Election

Remember that almost all the polls said Hillary would be our next President? And remember what virtually all the so-called experts and journalists said would happen if Trump was elected? They said the stock market would go way down – maybe even crash – because it hates uncertainty. And on Election night, markets around the world were falling as Trump racked up Electoral College votes. Japan’s markets were off by about 5%, Mexico’s peso was getting hammered and the US futures market was down by about 800 points.
So, did you again sell your equity positions on November 10th, right after it became clear that Trump would be the next President? If you did, you missed the Dow skyrocketing 1600 points from Election Day until the end of the year, closing in on that 20,000 milestone.


Imagine if you:

  • Got hit with a 1600-point drop in the Dow at the beginning of January;
  • Missed the 1000-point gain at the end of January; and
  • Missed the 1600-point gain post-Election.

You would be down about 10% in 2016. Whereas everyone that stayed in the market enjoyed almost a 15% gain. That’s a 25% swing. Ouch.

Let’s use real numbers in this scenario: Your $100,000 at the beginning of the year is worth about $90,000. Everyone else that stayed in the market saw their $100,000 grow to $115,000. That’s a brand new 2016 Ford Fusion difference.


From CNN on December 13th:
Expect the "Trump rally" to keep going in 2017. At least that's what major Wall Street banks predict for U.S. stocks next year.
From USA Today on December 28th:
The post-election stock rally and investor euphoria inspired by President-elect Donald Trump’s promise to boost corporate America's fortunes won't add up to big stock market gains in 2017, a USA TODAY review of predictions from 15 Wall Street strategists finds.
From CNBC on December 29th:
The S&P 500 has been down two-thirds of the time in the first years of all Republican presidential terms since World War II, whether it was the first or second term. The index, in those years, averaged a 1.8 percent decline.
That compares with big first-year gains in Democratic terms. The S&P 500 averaged a 17 percent first-year advance, and the market was up 89 percent of the time in the first year.


Timing the market simply does not work

A substantial amount of research has shown that investors who are in the stock market most of the time simply do not earn as much as those who are always in the stock market. The S&P 500 did not average an annual increase of 7.6% by rising steadily every day. There were varying days of big gains, small gains, big losses, and small losses.

It is impossible to predict the market 100% of the time and it is even more impossible to determine the exact moments to buy and sell. Investors who sell stocks and accumulate cash now, will then have to decide the right time to buy stocks again. You think anyone knows when that time might be? Sometimes, the stock market rebounds soon after a fall, and at other times it takes weeks or months. However, when the rebound arrives, it tends to come quickly. Investors who wait until they see the stock market rebounding have already missed those big rebound gains.

In one study of the stock market over 40 years, researchers found that less than 1% of the trading days accounted for 96% of the market gain over the years. Think we know which days are in that 1%?

If 2016 taught us anything during the roller-coaster ride, it’s that we should remain fully invested and not make decisions based upon the predictions of pollsters and so-called experts.

Instead, you should make investing decisions based upon your goals, your time horizon and your tolerance for risk.***

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