Editor’s Note: Alexander Green notes that the secret to success as an equity investor is not timing the market but time in the market.
If you’re looking for a stock to get started with, check out Alex’s simple plan that could allow you to build the retirement of your dreams with the help of just one stock.
He recently uncovered a brand-new investment opportunity with REAL cutting-edge technology.
This could be a recipe for success that comes around once in a blue moon… and this single stock could be the key to unlocking a richer life.
– Nicole Labra, Senior Managing Editor
Market timing means positioning your portfolio to be in for the rallies and bull markets – and out (or short stocks) during corrections and bear markets.
The idea appeals to some investors, especially those without much real-world experience.
But as I explained in the debate – and in my previous columns – it is entirely unrealistic.
Invariably, market timers end up guessing wrong and being in the market during the corrections and out during the rallies.
That doesn’t just lead to subpar investment returns. It also generates a boatload of short-term capital gains taxes.
(Which, admittedly, are generally offset by another boatload of tax-deductible losses.)
However, even if you planned to switch in and out of the market in a qualified retirement plan – where capital gains are tax-deferred – it still doesn’t make sense.
That includes not only what is widely known but also what is most probable or widely expected.
(Examples include estimates of GDP growth, increases or decreases in corporate earnings, and the Federal Reserve’s near-term interest rate policies.)
This should be a fundamental part of every investor’s knowledge and understanding: What will move the market tomorrow is not what is already known today.
It is new information – and particularly unexpected information – that drives share prices each day.
It is simply not possible for any individual – including Miss Cleo at the Psychic Readers Network – or any system (including Mike Turner’s) to know or correctly anticipate breaking news in advance.
Some analysts will claim to have key insight on economic growth, the price of energy or the future level of interest rates.
But these are just as likely to be wrong as right.
Even if someone were preternaturally attuned to commodity prices, currency fluctuations, business developments, pending legislation and the prospects for the world economy, it wouldn’t matter.
Why? Because the market also gets regularly derailed by bolts out of the blue.
In 1990, for example, stocks plunged into a bear market after Saddam Hussein’s troops invaded and took over Kuwait.
Oil prices spiked as investors prepared for war in the Middle East.
What system could have predicted Saddam’s actions and the Gulf War that followed? None.
On September 11, 2001, terrorists flew planes full of Americans into buildings.
The stock market sold off instantaneously. Then it closed for a week.
What system could have predicted 9/11? None.
In 2008, two of Wall Street’s storied investment banks – Bear Stearns and Shearson – collapsed due to their heavy exposure to collateralized mortgage obligations.
Merrill Lynch teetered as well. (Something that would have been unthinkable just days earlier.) It rushed into the arms of Bank of America to avoid bankruptcy.
What system could have predicted this? None.
In 2019, a novel coronavirus escaped from China and set off a global pandemic.
That led to widespread lockdowns, employee layoffs and business failures.
What system could have predicted this?
You already know the answer… None.
The secret to success as an equity investor is not timing the market but time in the market.
No other asset class – not bonds, cash, precious metals, real estate or collectibles – can match the long-term performance of a diversified portfolio of stocks with dividends reinvested.
So when a market timer confidently offers to keep your money in the market during the uptrends and out of the market during the downtrends, there is only one logical response.
Extreme skepticism. (Or, better still, derision.)
As I mentioned before, Turner – while claiming that he had profited from inverse exchange-traded funds this year – showed no evidence of past market timing prowess that would indicate future success.
In fact, he admitted to the debate organizer Mark Skousen that he has altered his approach in recent years.
And let’s be real. Market timers don’t change their system because it works too well.
Given all these facts, you’ll be surprised to hear Turner’s response to my arguments both during the debate and in an email exchange afterward.
I’ll cover that in my next column.