Market Timing

Financial professionals often lose sight of the people they serve. It’s a problem, but one not unique to the finance world. This filters down into the retail base, resulting in people who spend more time looking at the particular characteristics of the market right now than their own situations.

I fell prey to this many times.

When you’ve got enough money to dump into investments and savings, it’s easy to look at market valuations and so forth and decide to wait. Here are a few tricks to make sense of the proposition.

1) Would you actually be saving money by holding off a purchase, or are you about to waste it on stupid stuff?

An advantage to a retirement account is it’s hard to raid the account for stupid stuff, and frankly, I like buying stupid stuff. I could spend a lot of money on my car. Skiing isn’t necessarily an expensive hobby, but it can be. This exists.

So I look at the S&P and think to myself, a 50% correction is perfectly plausible right now. But whatever I throw in is not completely wasted, and I’m on a 30-60 year timeframe for retirement. Meh. The odds are good the market will come back, and they’re not nothing that the correction will hold off.

2) If you’re going to do something, you might as well do it now.

Markets usually go up. That’s why people use them. Even now in the era of madness, bubbles, and froth, they tend to rise. What’s more, no one can see the future, so we’re all looking at the same data, present and past. Many people are trying to time the market and they can’t all be right.

3) Are you playing to your strengths or someone else’s?

We all have the same data, present and past. But we don’t all have the same goals. A money manager can’t lose for five years. Their investors will take back all their money. I can’t get my money out of retirement for decades, so I might as well go long.

This also means that the importance of present and past data is lower for me, because the further ones goes out into the future, the more new present or past becomes meaningful. So if I’m looking at pulling cash out in 2060, 2040 will be old news then. It’s new past.

But obviously no one can predict that well now. It’s twenty years into the future! It only gets worse from there.

What I can control is right now, and if I’ve got some retirement cash right now, I may as well put it to work. Markets do generally rise. Even Japan is starting to come back. With regards to a worst case scenario, if I dollar-cost averaged into the Nikkei over the 80s, I’d be well ahead by now, even with the ’89 crash. (The Japanese stock market hit insane bubble heights in the eighties, crashed in ’89, and has not yet recovered)

There’s a chestnut floating around that you shouldn’t invest money you can’t afford to lose. This is absurd. I can’t afford to lose my retirement, but without investing it, I won’t afford to retire on it either. Obviously I invest money I can’t afford to lose. There’s no alternative.

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