As I write this post (on 8/7/19), the S&P 500 Index is 5.75% off its recent high. As I prepare to post this to our website (two days later, on 8/9/19), the U.S. market has rallied a bit, so that we are less than 4% off the all-time high for the S&P 500 Index. When you put it like that, it doesn’t sound too bad. But if you’re watching the news, it can feel a whole lot worse. And if you’re checking the value of your portfolio online each day (a really bad idea), it’s painful to see the declines in your portfolio – even if they are modest in the grand scheme of things.
One of the most important rules of investing is this: tuning in to media sources (be they financial or general) will not help you be a better investor. In fact, it will likely make you a poorer investor.
Does it help you to know how much the Dow or the Nasdaq moves in a given day? If the Dow is down 200 points today, will that alter your investment strategy? Will it alter your mood?
You can’t time the market. At least I can’t. Market timing is an investment hypothesis that has been tried for the 240 years of stock exchange history in the United States.
The basic idea is to buy an investment when it is “low” or undervalued, and then sell that investment when it is “high” or overvalued. The problem is that I don’t know when the “low” or “high” has truly occurred. I know when investments are “lower” and “higher”, because those terms are always relative to some reference point in the past.
Most of us have said or thought something like: “If only I had invested in __________, I would have so much money today.” Whether it’s the stock of Amazon, Google, Netflix, or Apple, the growth of these stocks over a long period of time is incredible. But when we examine the historical price movement of these stocks, we see that early investors have endured a bumpy ride.