Value Investing

Stop Trying to Time the Market: See Chart as Proof

Even value investors need re-enforcement from time to time. I found this great article via Meb Faber, but the chart at the end is even more shocking. A picture is worth a thousand words and a chart is worth even more. So check out this chart.

investor returns versus real returns

So why did individual investors underperform? The answer is obvious, they tried to time the market. They bought oil in June/July 2008 when oil went up to $148 a share and Goldman predicted it would rise $150 while others said $200, $300 etc. The price of oil then plummeted. Investors didn’t buy when oil was $10 a barrel in the late 90s and everyone was bearish. They bought Apple when Kim Kardashian was pitching it, not when the stock was a few bucks 10+ years ago.

Investors bought gold when all the big hedge funds (yes the ‘pros’ are also the dumb money)  were pitching it as a no brainier investment in 2012. Retail investors were not buying in 2000 BEFORE the US started running big budget deficits, and central banks around the world started ‘printing money’ and debasing their currencies.

Investors bought homes at the peak of the housing bubble hoping to flip and make a quick profit. No further comment is needed on the housing industry, as it is well known to many.

The ‘smart money’ has been shorting treasuries since the US is running deficits. Ironically  many fail to realize that in times of economic doom treasuries and high grade corporates do well. They did not buy bonds when the yield on Aaa corporates was 8% and stocks had earnings yield of 3-4%. Compare that to today when  they yield half that amount.

Emerging markets are hot, everyone a few years ago was saying to buy China. The Euro looked like a better bet then the US only in 2007.

Stop trying to time the market! Put away money in index funds in sleep. Index funds are far from perfect but for the average investor (and many professional money managers) they will likely produce far better returns than 2% CAGR.