Only losers time the market
#diamondhands & HODL? Hell yes!
Just with some good stocks and ETFs.
TLDR
- It's super boring advise - but ‘time in the market’ beats ‘timing the market’
- Unless you’re an oracle, have a future-predicting genie in your pocket, or god, you will not be able to predict the exact time to buy and sell equities. Yea - even hedge fund managers with millions of dollars worth of research and tech dont get timing right.
- Problem is - some of the best gains happen in bear markets, and some of the worst losses are seen during a bull run. And emotions usually get better of us during either of the runs
- You have jobs to do, dinners to enjoy, shows to binge and, if you are in Asia, investing in US equities - you need to sleep. So you physically cannot be on the terminal at the best buy/sell times!
So what is timing the market?
In simple terms - buy low, sell high - repeat. A trader who believes she/he can find the right time when stocks go up or down, would like to take advantage of the swings. This does not really mean day trading or option trading alone - even investors who buy and sell equities on a very regular basis, to ‘capture’ some gains are trying to time the market. This strategy of timing the buy or sell, is to minimize losses and max the gains.
So does it work?
The most important thing you need, for timing of your buys or sells to make you money, is to know the exact time to execute trades. And that is where the problem lies - it is damn difficult to time the market accurately and consistently - especially over a long period of time. Often investors like you and me (retail) panic at the slightest slides and think we’re being smart by selling all positions and keeping money in the bank - only to see the prices creep up, beyond the prices we sold at. Why does that happen? It’s cause we have this thing called ‘LIFE’ - families, friends, jobs, kids, working out - life takes over and you take your eyes off the market.
Add to it, some of the best gains happen during a bear market. Of course - you may say that investing during the bear market is ‘timing the market’. Sure - but just remember you cannot predict the bottom during a bear market Just check what's going on with Tech stocks today. And last week, some smarties predicted that the bear market was over. So if you purchased last week cause we were at the bottom and wanted to sell this week - well too bad.
Time in the market - HODL! Just some good assets.
The apes were going nuts hodling GME options when the crash happened after (admittedly) an epic squeeze. If you havent seen _____ on netflix, you should. Just don't get any fancy ideas that the entire universe will conspire to present the same opportunity just for you when you start investing. Its rare. Very.
HODLing is actually a great strategy - just when you do it with good quality, solid assets. The longer you HODL (time in the market), research points to the fact that you will probably outperform scenarios where you buy/sell like an ape with a microsecond of attention span.
What’s the proof that HODLing works better?
Let’s break down the data in that chart.
Baseline: You started investing with $10000, in S&P 500 on 31/12/2006 (even if you were in your diapers then, just hold the date for demo purposes). And you stayed fully invested - NOT succumbing to selling when down markets came, till 31/12/2021 - a full 15 years.
So now the scenarios
- Stay fully invested: you would have seen a 10.64% annualized returns and your 10K would be 45K.
This is boring - we get it. But remember Diamond Hands and HODL - with good assets, this is what usually happens.
- If you were timing the market, and if you missed the 10 best days for gains, your returns would have been cut in half. Returns - 5.05% annualized
- To wrap up, if you had missed 20 best days (1.5%), 30 best days (-1.1%), 40 best days (-3.58%)
Let's unpack this a little - what the research is doing, is taking out your investment (of the initial 10K) out of the market to see what happened if you had not stayed invested for the 10 best gain days. It’s an example - but a powerful one to show that failing to ‘stay invested’ in the market and missing the best days, can hit your portfolio badly.
Why does this happen?
Simply because NO ONE can predict what the markets will do. Some of the best gain days have come in the worst bear market and the worst days have occured in a massive bull run. You simply cannot time the market.
And the solution
Spend more time in the market.
Staying invested - through the ups and the downs is the right way. Sure there are smarts on WSB and Discord who will convince you that they have found a way to beat the market every time. You will be bombarded with ads from the geniuses who promise to show you a super secret way to trade and make money from a beach in Bali. It may have worked for some, but it's like winning a lottery - it's pure luck and not a skill that you can learn or teach.
Just think about it - if someone found a way to potentially make unlimited amount of money trading and timing the market, would they be showing ads on Youtube to con you into buying a ticket to a seminar? Do you see Elon Musk or Jeff Bezos selling tickets to “How to be a billionaire entrepreneur?”
Final words - research the markets, diversify, choose a basket of ETFs and high quality stocks that you are interested in learning about. Buying stocks is NOT like buying a lottery ticket - its buying a piece of a business.
#investresponsibly
Go to this stock return calculator and find for yourself or you can read more on why are companies investing in Formula 1