The Buy Low/Sell High Myth

For months, stock market bears have predicted the stock market’s demise of varying degrees. Some predict a market crash followed by a recession and all but suggest investors hoard gold under their mattress. Others predict a much needed market correction that will skim a little off the top and be a buying opportunity to make up for previously missed opportunities.

As the saying goes, a broken clock is right twice a day. What this means is, inevitably, a market crash, or more preferably a market correction, will happen. When that does, expect these bears to get wall-to-wall coverage on all your favorite economic news and investing shows espousing the brilliance of their fortuitousness. Like us, we’re sure you religiously watch financial news shows.

If one reads between the lines of most investment talking heads, though, one can see they’re playing a game of stock market chicken. In the investing world, this is called “timing the market”. That is, they use any number of indicators they’ve come to trust to try and calculate the precise time they should sell in order to generate the most financial gains and mitigates most financial loss.

When the market does crash or correct, these same experts will then talk about their calculations to try and determine the precise time to get back into the stock market. The problem is that most professional market timers aren’t good at timing the market. Therefore, it’s not a great strategy for use “lay folk” to adopt.

Trading Pros Can’t Time the Stock Market

In 2013, Mark Hulbert of Barron’s studied the success of 100 market timing newsletters and websites from the market top of October 2007 to the market bottom of March 2009. None of the market timers called either the market top or the market bottom. Even with giving timers a full month leeway to notice the change in market direction or a 25 percentage change in stock market direction, only 15 market timers showed signs of a significant reduction in equity exposure after the market top of October 2007. Of those 15 market timers, only six showed a significant increase in equity exposure at the bottom of the market in March 2009 even by April 2009.


Read also: 3 Steps to Achieving Your Financial Goals


If 94 percent of stock trading professionals with their legions of followers and high tech computer trading systems fail to reasonably time the market, even in slow motion, what are the chances of those of us with a desk job or who work on the floor succeeding with timing the market? Nil.

Don’t Time the Market, Just Get in the Market

We’re in luck. We don’t have to time the market to succeed with investing. We just need to get into the market in order to succeed with investing.

Studies suggest that in any 20 year period a person who invests their money as soon as they have money underperforms the mythical market timing rock star by only 6 percent over that 20 year period. For all their time spent researching stocks and stock performance and money spent on market timing technology, these mythical figures only outperform investors who simply invest their money upon receipt by single digits over 20 years. A simple cost-benefit analysis shows the reward isn’t worth it.

In fact, those who invest their money immediately upon receipt actually outperform those who exercise one of the money magic tricks of investing, dollar cost averaging. Of course, because most of us don’t receive enough one-off checks, but rather biweekly or bimonthly checks, throughout life to benefit from immediate investing, dollar cost averaging is the solid investment plan.

Don’t Wait. Invest Immediately

Our advice to you is to invest now, don’t wait. Open an account today and start investing whether you have a large amount of cash now to invest or will have a small amount of cash every couple of weeks to invest. If you wait for either stock market bears or stock market bulls to be right, you’ll likely always be late to the game.

If you don’t have an account in which to invest or the thought of starting investing scares you, follow these “10 Steps to Simple Investing”. Get started today. To wait for the perfect time, guarantees missed opportunities.

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Comment List

  • SavvyJames 31 / 07 / 2014 Reply

    An important topic. ‘Traders’ try to time the market, most often unsuccessfully, while ‘investors’ make regular contributions to investment accounts and retirement plans with long-term objectives.

    • John Schneider 02 / 08 / 2014 Reply

      Absolutely. Once has a more certain outcome than others, but it’s easy to get caught up in the excitement and hype.

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