Everybody has or knows someone who has a great market timing story. Their story might be a little exaggerated or embellished, but it’s probably mostly true…of course, you typically only hear the good stories and not the bad ones. Market timing is tough, very tough. It requires picking the right time to get into a stock and the right time to get out of a stock – it’s doubly hard to get it right both times.
For every share of a stock bought, there is a share sold. Typically, this buying and selling is done at an exchange. The combined effect of all this buying and selling is that all available information is quickly incorporated into a stock’s price. So, trying to time the market based on an article you read, a TV show you watched, a chart you analyzed, or what your neighbor said is likely to send you chasing after old news. If only we could stay ahead of old news.
But what about professional stock pickers? They’re professionals, so they must know more than us, or be correct more often, right? Unfortunately, that’s not the case. Check out the this article from DFA to learn why.
Q1, 2019 MARKET SUMMARY
Here you will find DFA's quarterly report for Q1, 2019. In my Q4, 2018 quarterly report post, I pointed out the big red arrows that represented major stock market indexes across the globe*. My key take away was that major markets do this in the short-term; there will continue to be stretches where markets perform very poorly, but we must stay vigilant and know these big red arrows are a temporary bump in the road to the overall growth of major markets (more green arrows) and more importantly the growth of our retirement portfolios. Remember markets move quickly and we saw that happen over the last six and especially the last four months!
*”Q4, 2018” graphic below represents the whole year, but the market losses were concentrated in Q4
Q4, 2018
Q1, 2019
MARKETS SURE DO MOVE QUICKLY
"Markets move quickly!" – you’ve heard me say it or write it countless times.
The S&P 500 (which represents over 500 of the biggest companies in the U.S.) had its worst December since 1931. What happened next? The S&P 500 had its best January since 1987. In December, did we panic and sell? No. In January, did we get over-confident and make irrational decisions? Didn’t do that either. Instead, we stayed calm. And we stayed calm because we know this is what markets do; they’ve done this before too many times to count, so when it happened in December / January, we were prepared and we knew how to handle it, and when it happens again, we’ll be prepared for that too.
Kudos to our clients because not one panicked in December; there were emails and phone calls, which are welcomed, but nobody sold while the markets were down. If it was warranted, we took opportunities to shift money into stocks for clients and (on paper at least) they’ve received a little extra boost in their portfolio’s value with January’s rebound, more so than if we had done nothing in December, or even worse, had we sold in December.
Again, stay calm and stay the course, but the more of these quick volatile moves we get through, the better prepared and less worried we’ll be when they happen again.
Q4, 2018 MARKET SUMMARY
Please click here for the Q4, 2018 Market Summary provided by DFA. Q4 was very bad for U.S. and foreign stock markets, as well as global real estate exposure. Please take a look at page 4 (also pasted below) for a long-term market summary. Here you’ll see all big red down arrows for our 1-Year market performance, but, more importantly, don’t overlook the big green up arrows that represent 5 and 10-Year market performance. When investing in stock markets we know a lot of short time frames, like a month, a quarter, or maybe even a year or two will be down red arrows, but that’s OK because we invest in stocks for long time frames, like 10 years, 20 years or even more. And long time frames will show us plenty of big green arrows pointing up.
10.10.2018 MARKET RECAP
So far, the month of October has given back all the gains of the S&P 500 3 months prior. In other words, the price of the S&P 500 Index on July 10th is pretty close to its price today. It’s important to keep in mind that stock markets go up and down quickly; very seldom do we see slow and steady growth or slow and steady declines. What do we do about these quick movements? Stay the course. This might be a bump in the road towards higher stock prices or this might be the beginning of a long road down for stock prices – we just don’t know which one will happen next. We’re not going to know when to get out before sharp declines happen or when to get in before quick rallies happen, so we need to stay invested every day. When we stay invested every day we’ll take part in all of the markets’ upswings and downswings, but we take comfort in knowing we’ll participate in more and larger upswings than downswings, and over time, this will build wealth for us. This is what markets do – sharp movements, and the ones to the downside feel like they hurt more, but keep calm, stay the course and you’ll be well rewarded in the end.
CHASING PERFORMANCE
Here’s [original link to video has been moved] a short video explaining why we don’t chase performance. Chasing performance would be looking back at which mutual funds had great years and then investing in those mutual funds thinking [hoping] their great performance would continue. Most times this isn’t the case, and at least not enough to even make this a sensible investing strategy. There’s good evidence to support chasing performance doesn’t win in the end, but what does win the end is diversification, low-cost, and patience.