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How Does Market Timing Compare to Value Investing?

How Does Market Timing Compare to Value Investing?

March 14, 2019

There are many investors who play the game of market timing. Perhaps they enjoy trying to time their exit from the S & P “just right” to avoid losses. Or, maybe they believe avoiding those losses is better than missing out on potential gains they might reap if they simply ignored the roller coaster and left their funds alone. Regardless of how you look at it, market timing has to be exhausting. Not only must you predict when the market falls—you must also predict its rise.

Historical data illustrates that time in the market is far more important than market timing, according to an article in Forbes. So, practically speaking, one might determine that investors who practice market timing may generally see lower returns on investments than people who prefer value investing. This point is further illustrated in the bulleted example below. Value investors stick with a stock and an established investment strategy over a longer period of time. So, they take the hits when the market dips, but they also reap the potential rewards on days the market climbs.

And, that’s the key. When you make changes to your asset allocation based on fluctuations in the market, you might escape the lows, but you can miss the highs. And that can negatively impact your returns in the long run. 

Timing the Market vs. Time in the Market

Warren Buffett, who is perhaps one of the greatest investors of our time, doesn’t play market timing games. In fact, he says, “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.” Sound advice from a solid investor who has made billions investing over his lifetime, proving that patience and time in the market can pay off. There’s a reason his is a household name. Just how many names do you know of those who time the market, jumping on and off Wall Street at a whim?

And, take a look at this example that illustrates the gains you’ll forego by missing just a few good days over a 15-year period.

Say you invested $10,000 in the S&P 500 on December 31, 2003, and then took it out on December 31, 2018. Here’s where your assets could be1 if you:

  • Left your investment untouched: $30,711
  • Missed the 10 best performing days: $15,481
  • Missed the 40 best performing days: $4,943

Which is more appealing—losing over $5,000 by folding or gaining more than $20,000 by holding?

Invest with Patience

Successful investing looks more like a commitment to a stock over the long term, not a get rich quick scheme. Time on the market is the real deal. If you buy stocks from companies that have a reliable history in the stock market, you may have a better chance at realizing gains over the long term.

There’s no doubt that the volatility of the market can be downright uncomfortable. But, so can trying to predict the future and moving your money every time you anticipate a fall. And, then there’s the work of determining what to invest in next. Based on past performance, it seems you might be better off if you just accept and ride the market cycles. As the example above illustrates, you stand much more to gain by holding steady than you do from cashing out. And, If it makes you feel better (although this is not a guarantee!), the Dow Jones Industrial Average has never failed to grow in a 20-year period. 

Your Takeaway

You don’t have control over politics, global economics, or worldwide markets that can cause the market to go bull or bear. However, you do have control over your investing decisions. And, your decisions should be made with care.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.