The financial press continues to search out the ‘best’ time to invest in stocks or the markets in general. Their search for the ‘best’ market timers have resulted in new ‘experts’ every year. Primarily because repeating past success has been very difficult.
This is due to the fact that this past success was likely due to luck rather than skill.
No one can consistently predict the future of the equity markets and for that matter. No one on consistently predict anything.
Every generation of investor including advisers believes they can find a quantitative method to predict market movements. It is only through experience that they learn it is not possible. Is this called wisdom, perhaps it is?
It seems every generation of adviser believes that the only way to bring value to their clients is avoid risk, through market timing. Getting into and out of the markets at the right time.
As an example there is a new indicator developed by professors at Yale and Harvard. Impressive right? It tells when to overweight stocks and when to underweight stocks. This they contend will improve investor returns. During a study comparing a fully invested portfolio with the ‘indicator’ from January 1997 through June2014 average annual return:
- S&P 500 97%
- Treasury Bills 42%
- Ivy League Indicator 09%
The problem all market timers have is that the equity markets go up more often than they go down.
Of course there will be periods when this indicator will ‘work’ but there is no way of telling when that will be.
A trader I know in Chicago once told me ‘all systems work until they don’t’. That should be comforting to all investors, Right?
The questions investors need to ask themselves is do I want to continue worrying about which indicator is right?
Perhaps we are all looking for ways to avoid another 2008-9. Unfortunately, building a portfolio to protect against this type of event will lead to very disappointing results long term.
A more prudent solution would be to hire an investor coach/fiduciary adviser. Your coach will help you build a prudent portfolio designed to help you reach your financial goals.
Once your portfolio is built your coach will help you remain disciplined in both up AND down markets. It is here that your adviser’ earns their fees.
Asking or expecting your adviser to predict the next hot asset class or stock will only lead to anxiety and poor results, long term.
Patience and discipline are rewarded, long term. You need an investor coach to maintain both.
