Timing Is Not The Key…Time In The Market Is
I don’t know if you’re a baseball fan, but did you ever notice that the pitcher in baseball often gets credit with the win or the loss?
However, sometimes the pitcher who gets credit for the win might have only pitched for an inning or two.
This happened just recently with one of my friends’ sons and he’s playing baseball this summer and got pulled in for a couple innings, brought the team back, and he got the win.
It’s not necessarily about how long they pitched. It was about being in at the right time and pitching and ending the game and getting the win.
This reminds me of the Common Portfolio Wisdom, “Timing Is Not The Key…Time In The Market Is.”
The truth is, it’s neither. Sometimes you have that time when the pitcher will go the whole game and it’s amazing, and they win the game. And sometimes the pitcher that came in for two innings gets the win.
It’s really not about just being all in time in the market, nor is it about timing the market, which we can’t do. It’s about being in harmony with the trends.
When it comes to investing in the market, you might have heard it said that timing isn’t the key, but time in the market is. We’re going to continue our series on common portfolio wisdom and talk about this.
Let’s take some time to break out these two different ideas of that.
Market Timing – Tactical Management
Timing the market is often referred to as some kind of a tactical money management approach.
It will take a look at different indicators, whether it’s fundamental indicators, quantitative indicators, whatever the manager has decided and they’ll look at those indicators and when those indicators go off, signaling a change, either up or down in one way, then they will buy or sell.
Those approaches can be very good in some markets and work great.
For example, in 2008 a lot of these tactical approaches got out of the market, avoided some of the big losses.
But on the flip side, if you have a volatile year and the tactical approach is only looking at signals, sometimes they go in and out too fast and see a whipsaw effect.
So therefore not always does the tactical approach work best, even though it sounds like it can.
Buy and Hold – Time In The Market
On the other side, you have time in the market, this would be your old buy-and-hold strategy.
People that advocate for this, say if you look at a 10 year period and you miss the five best days, your returns are significantly reduced, which is true.
However, if we call on the other side, if you miss the five worst days, your returns are probably going to be significantly better. So when it comes to buy and hold, being time in the market, there’s some half truths to this too. We don’t want to whipsaw by going in and out, but staying in the same thing for the long term doesn’t always work.
For example, the lost decade from 2000 to 2009. If you would have used the buy and hold strategy and stayed in an S&P type fund, you would have returned less than 1% during that period.
I don’t know about you, but that’s not a great return, especially for those in retirement. This would not been a strategy for them to use and create income.
In fact, you probably saw stories about people having to go back to work or change their lifestyle because they couldn’t create the income that they need anymore. Why? Because buy and hold doesn’t work when you need to generate retirement income.
So if tactical can be a problem and buy and hold can be a problem, then what’s the answer?
The answer is really being in harmony with market trends and having a portfolio that has assets or positions that are not correlated.
So that means if the market is down over here we have some other positions that are not correlated to what the S&P is doing or what the market is doing.
When it comes to having that tactical approach, we’ve learned from the past, it’s not just about looking at indicators.
Being in harmony with long-term trends goes beyond just looking at an indicator. You have to have the computer element, the robo type element to it, but you also need the human element. The human element sometimes has to override or take a look beyond what the computer itself can do.
So being in harmony with these long term trends takes a manager who uses indicators and is always watching what is happening in order to make adjustments when needed. When they see a trend emerging, whether it’s as quick as it was when they COVID pandemic crisis in the United States started or when it takes a little longer time, they’re looking at those trends and they’re going to make the changes to protect you.
It’s really not timing the market because no one can exactly time the market. But it’s not always time in the market too because buy and hold doesn’t always work, especially when you’re going to take money off of it.
There’s really two emotions that come when we’re investing and that’s fear and greed. When you look at timing the market or time in the market, both of them have their challenges.
The greed comes in as the market is going up, up, up and it’s higher. People want to get all the gains, they want to have all the gains that they can. So when we’re at the top, we have that greed emotion come in. We want to make sure we get gains.
They always talk about how we should buy low and sell high, but who wants to sell when the market is up?
Then, when the market starts going the other way and it starts falling, we go through all these stages of denial then fear, and you have ridden the market all the way down and then people sell.
That is timing the market in the wrong way, which is why some people advocate for the buy and hold to get your emotions off of it. However, we say get your emotions out of it by having a manager who’s going to be looking at the long term trends, making sure that you’re correlated with both a robo-type approach and the human element on top of it.
Plus, they’ll be making sure that you have assets in your portfolio and your retirement that are not correlated, so no matter what happens, even if things are down for a while, you have accounts that aren’t down, that they are not correlated.
It’s not timing the market, it’s not time in the market, it’s being in harmony with market trends and having positions in your portfolio and your accounts that are not correlated.
We just did a great market update call on this. Feel free to check it out and if you really want to know how you’re situated, we do reviews all the time. We believe if what you have is good, it will be obvious, and if it’s not, if there’s any issues that we just talked about you need to know why it’s not good.
Either way, if you’re good or if you have issues, you’ll feel more confident to either stay the course or correct the issues.
Schedule a call to us today. We’ll do a review for you and let’s get you on track to be in harmony with long-term market trends.
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