Posted by Madison on April 16, 2009
It wasn’t long ago that we were feeling the pains of a plummeting stock market. While it was hard to watch tens of thousands of dollars disappear from our accounts on what seemed like a daily basis, I kept reminding myself and everyone around me to stay put. We’re in it for the long term.
It finally paid off! March 2009 Was a Perfect Example of Why You Shouldn’t Try to Time the Market is an excellent visual that reinforces why we don’t want to move in and out of the market.
I’m just hoping that all of you stuck with your overall investment plan and didn’t miss out on the rally! This won’t be the last decline and it won’t be the last rally, so it’s important to secure an asset allocation that you feel comfortable with in any kind of market and stick to it!
It’s also a good time to do a check-up on your portfolio and rebalance if you’ve gotten away from your desired asset allocation. I know that’s on my to do list now that tax season is over!
By the Numbers
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“It finally paid off! March 2009 Was a Perfect Example of Why You Shouldn’t Try to Time the Market is an excellent visual that reinforces why we don’t want to move in and out of the market. ”
Are you serious??? MArket rally like that in march on the back of completely ignoring horrendous economic data points (jobless claim, industrial output, retail, inventory pile-up) and led by the ultra-toxic financial sector is not cause of celebration, it is a bear trap.
And lest folks suffer from short term memory less, this is the 6th such 15%+move in this bear phase and each time people/pundits have hailed “arent you glad you bought and HOLD”, only to see the market ultra correct to hit new lows.
I understand the point made by Waren above but I respectfully don’t see how he responded to your post.
Your point, and a good one, was that it’s impossible to time the market. I agree with that.
Waren may be right – I suspect he may be. I don’t think it’s “all clear” in the market – but the question is – what to do about it?
This may be a bear trap…but does he -or anyone- have a historically proven method to time the market? If not, what are the alternatives?
All I can say is bull markets like to climb a wall of worry. So all the skepticism could be just that, or it could be perfectly justified. We won’t know until we look back on it in a few weeks. I continue to stay fully invested (as I have throughout this bear).
@neal : a buy and hold is essentially a bull market strategy and thats why mutual funds have done so well over the last 20-25 years. Add to that an increasing leverage in that period and returns get even bigger (bloated). But when market turns in a drastic manner and the play book is completely revamped ( as is now, read:leverage gone, corporate outlooks pretty bad, s&p gaps up/down every morning for no apparent reason) this buy and hold style index following mutual funds have no place to hide.
With regards to historic reference for the buy and hold failure refer to the 2000s fondly being called the lost decade as funds/buy-hold/index-funds returned 0% , (-ve) if you account for inflation (http://online.wsj.com/article/.....whats_news).
As per going forward from here: active trading is the way, build a core portfolio and then trade around it to book profits, stay hedged either by holding cash or with short exposure. That doesnt mean 401k contris should be stopped, but blind dependence on 401k black boxes at this time is, well stupid
For normal folks like us trying to manage our hard earned money, the biggest concern in terms of the market and mutual fund returns would be the massive deleveraging in the market, once it caused bloated profits, but now its causing bloated losses!!
that was quite a rant by me !! anyhoo good luck
Every month I have just kept repeating the mantra, “Keep investing, it’s only a loss on paper!”
That being said, my only investing is long-term and I’m still in my early 30s so I’m not sweating this downturn. I only wish I had more money to throw in the market now, but we’re already contributing 25% to retirement.
Unfortunately, it wasn’t impossible to time the market in this case – the current bear rally came on the back of the Financial Accounting Standards Board loosening its rules on “mark-up-to-market” accounting. Basically, banks were required before to reprice their assets at current market prices, which were abysmal for their toxic securities. With the loosening of the rules, they can claim those same securities are worth a lot more. Problem solved! Until the “assets” behind those securities (such as subprime mortgage debt) start defaulting. Have fun when the market tumbles again.
It is absolutely possible to time the market. Look for market short term trend reversal around Apr 20th – 23rd 2009. It can been done before and in future.
Bear market rallies are a natural part of the economy; they’re only “traps” perhaps, for those who try and fail to time the market. There will always be rallies and dips. I’m a long-term investor, so while technically I try to “time” the market by buying on dips, I’m not “timing” the market by selling anything. I’ve only ever sold one stock in my ten-year-investing career so far. (And I tend to hold individual stocks, because I do the research on them… )
“Buy-and-hold” strategy is also a good strategy. Warren Buffett must be one of your favorite icon as much as he is to me.