No one knows how far the stock market will go up, and no one know how far the stock market will fall. Not only are the highs and lows unknown in advance, the timing is also unpredictable.
Those seeking to time the market by predicting the extremes are bound to be disappointed.
Lessons, History, I
During The Financial Crisis, as the economy and the markets declined, Warren Buffet published an opinion piece in the New York Times . His comments about timing:
“I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month or a year from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”
Some considered that his writings might signal the bottom of the decline. It was not so. His article was published on October 16, 2008. The markets did not hit bottom until March 6, 2009. So predicting the exact time when things change is impossible, but trends can be identified. He was following his own advice:
“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.”
Lessons, History, II
During the internet dot-com bubble, AOL bought Time-Warner. Many considered that that acquisition, announced on January 10, 2000, was the high point of stocks. In March of that year, the Nasdaq hit its peak, and the decline that started then ended by October 2002.
What are we to learn from all of this? Of course we learn that attempts at timing the market is absurd.
Do you attempt to time the market? Given the recent highs in the markets, it would be prudent to pay attention to one’s frame of mind.
The post Where Is the Bottom? Where Is the Top? appeared first in Smile If You Dare.