How To Be A Loser… (AKA Why Trying To Time The Market Is A Loser’s Game)

by | Jul 28, 2023

Have you heard stories from a friend about how they made some big bucks by buying a stock at the right time? Or how someone saved their ass by getting out of the stock market before a big drop? Have you ever read an article or seen a TV title like “10 Hottest Stocks To Buy Now” or “Stocks You’ll Regret Not Buying”? The media and friendly gossip portray the stock market as a vehicle to get rich quickly by buying into the stock market and capitalizing on short-term market fluctuations. As tempting as this strategy might sound, it’s essential to understand the consequences of market timing as it can lead to detrimental effects.


Marketing timing (attempting to buy into the stock market when prices are the lowest and sell when the prices and return are the highest) is essentially gambling and guessing. While there is absolute sense in buying low and selling high, it is impossible to know if you are buying and selling at the right or wrong time without a crystal ball. I have had a crystal ball for many years, but unfortunately, it has never shown me what the damn market is going to do.


You also have to be right with this “method” twice- when to sell and when to buy, which is pretty impossible. Even experienced, seasoned financial experts and analysts struggle to accurately predict both the low and high points of the market as it shifts. For example, no one expected the stock market to hit record highs 6 months after rapidly declining by 34% after COVID lockdowns began in February 2020. The outlook of the economy was bleak, which is why millions of investors pulled their money out of the stock market and missed out on the gains that quickly followed. If these “experts” could actually forecast the market, do you think they would be spending their time on TV or behind a desk instead of on a private island that they could buy with their foresight? Nah. 


When the stock market is declining and the media is telling you to lose all hope, it is tempting to sell and wait until things get better before investing again. However, the consequences of this are substantial and can happen before you have time to notice. For example, in this video, you will see that if you had invested $1,000 in the S&P 500 and stayed in the market from 1990-2020 you would have $20,451. If you missed the one single best day of the stock market you’d only have $18,329. If you missed the five best days, you would only have $12,917. I know this should be of no shock, but the news and media are not there to be your bestie and look out for your best interests. They prey on fear and anxiety to keep you hooked. The dudes on Wall Street would LOVE nothing more than for you to sell at a loss when you are filled with fear and anxiety as this is how they make the big bucks. As counterintuitive as it may feel, the best thing you can do is to ignore the noise and stay invested. 


Trying to time the market perfectly can be a very costly mistake. According to this article by Hartford Funds, 78% of the stock market’s best days occur during a bear market or during the first two months of a bull market, both of which are usually announced months after the fact. If you miss the market’s best 30 days, your returns would be reduced by 83%. Yikes on bikes! You definitely don’t want to miss out on these days, but you will if you don’t stay invested and fall prey to the noise that happens whenever the market is not going up. If the market only went up, then you wouldn’t get the returns you do as there is risk with the reward. This risk is the price you pay for investing your dollars and as uncomfortable as it may be, it provides you with the highest chance of success in the wild world of investing.


Rather than trying to time the market perfectly, the key to success is crafting a solid financial plan and sticking to it for the long run. The S&P 500 is the best and simplest example to illustrate the importance of a long-term strategy, producing an average annual return of 10%, which is amazing. However, rarely did the S&P ever actually return 10% in one year.  In fact, there have only been 6 years since 1926 when the annual market return was close to 10%.  So how do you get this average of 10%? By staying invested through the tumultuous ups and downs.


Market timing is an expensive distraction that can lead to disastrous results for your portfolio, as demonstrated in this study here by Charles Schwab on if market timing works. What their study finds is that your best chance for the highest returns is to invest in stocks immediately and stay the course. 


As unexciting as it may be, to be a winner in the game of investing, your time in the market, not timing the market, will provide you the highest chance of success (and highest returns). Unless you have a magical crystal ball, of course. At Empowering Finance we believe in investing with a sustainable strategy consistent with your goals, values, and lifestyle. This strategy leaves you to do the things with your time that bring you joy, rather than fear and anxiety. Who doesn’t want more JOY in their life?!