I Told You So!

“Stock picking and market timing are expensive, risky, and ultimately futile exercises.” – William Bernstein.

As you may recall, on Friday, March 6th I wrote that it was a mistake to be scared out of the stock market.  The stock market actually hit its bottom on the next business day, Monday, March 9th.  Since then, prices have soared, not in a perfectly straight line, true, but the increases have indeed been spectacular.

What does that mean?  That I can predict stock market prices?  No, absolutely not.  That remains an “unacquired” skill.

What it does mean, though, is that I follow a buy and hold philosophy, because getting out of and into the stock market again and again is a losing strategy, simply because you are not going to do it well.  One benefit of working with a fee-only financial advisor is avoiding the emotional swings that accompany volatile stock prices.

Please read my March 6th post, Nobody is Buying Stocks?  in which I mocked the total negativity that was seemingly everywhere in the media.  I pointed out just how overblown the language used at the time was:

“With so much uncertainty, investors are parachuting out of companies…”

“No one is taking a back-seat approach. Everyone is just selling.”

“It’s like an unending nightmare.”

Please take a moment to read the entire post (if you haven’t already), but here is the conclusion if time is pressing:

“No one knows what tomorrow will bring, but unless capitalism ceases to function, stockholders will be rewarded in the long term for owning stocks and for taking risks. Yes, there is risk in owning stocks, as we have recently experienced. Since we’ve already seen the risk, how about staying around for the reward?

An old Wall Street proverb is that “Nobody rings a bell at the top or the bottom of a market.”

Are you waiting for that bell to ring?  Don’t.”

As I pointed out, since March 9th stock prices have soared.

Understand, though, stock prices can go down again.  In fact, I can  guarantee that.  Once again, I am not clairvoyant, and I rarely make predictions.  But, I have counseled a buy and hold strategy for many years. There is no evidence that anyone can get in and out of the market at the right time and improve on a buy and hold approach.

Heaven help the person who got out of the market earlier this year.  The March 6th post quoted financial advisor Bijon Mishras who said, “I want to wait for a firm turnaround, and be as safe as possible.” I wrote, “Whoa, Nelly. Remember this quote and see how it turns out.”  So, Bijon, is now the time to get back in?

On March 16th I wrote a series which started with Is Buy and Hold Not Working? Part 1.  I said that timing the market was impossible, “The evidence shows that most investors get it wrong over and over again.”

“Historically, stock markets have had sharp increases following a bear market.  The difficulty is identifying when that move is for real.  Bear market rallies, bear traps, etc. tend to keep investors gun-shy, so a sustainable bull market rally will only be identifiable in hindsight.

Nevertheless, individuals who keep their investments in cash or Money Market funds will miss out on most of the move.”

Conclusion

I’ll stick with what I said on March 27th, “Given what does not work, what is the recommended approach?  In my opinion, it is a diversified, low cost, buy-and-hold portfolio matched to your time horizon and risk tolerance.”

A good advisor should help you do that and also avoid the “big mistakes” of buying high and selling low.  Is that worth the annual amount you pay a fee-only advisor?  I certainly think so.  Do the math.