top of page

The Peril of Market Timing

Updated: Apr 3

The coronavirus is still very much with us, as is much of the economic dislocation created by the resulting lockdowns. An interesting observation has been to watch how various states leaders have approached the pandemic.

Granted, we are evidently closing in rapidly on a vaccine—quite possibly a number of vaccines:

However, it may be awhile before most of us will get access to a vaccine, which perpetuates uncertainty for many of us. It doesn’t help that in the coming weeks we will have to go through a hyper-partisan presidential election, with a variety of voting issues we’ve never had to deal with before.

With these ideas as a backdrop, I want to take a moment to review what we as investors should have learned—or re-learned—since the onset of the great market panic that began in February/March.

The lessons, in my view:

No amount of study—of economic commentary and market forecasting—ever prepares us for really dramatic black swan events, which always seem to come at us out of deep left field. Thus, trying to make an investment strategy out of “expert” prognostication—much less financial journalism—always sets investors up to fail. The only remedy for the continuous bombardment of “news” today is having a long-term plan coupled with a grounded investment philosophy. Continually working that plan through all the fears (and fads) of an investing lifetime tends to keep us on the straight and narrow and helps us to avoid sudden emotional decisions.

The equity market went down 34% in 33 days. None of us have ever seen that swift a decline before—but with respect to its depth, it was just about average. What I mean here is the S&P 500 Index has declined by about a third on an average of every five years or so since the end of WWII. But in those 75 years, the S&P Index has gone from about 15 to where it is now. The lesson is that, historically, the market declines haven’t lasted, and long-term progress has always reasserted itself.

Almost as suddenly as the market crashed, it completely recovered, surmounting its February 19 all-time high on August 18th. Note that the news concerning the virus and the economy continued to be dreadful, even as the market came all the way back. I think there are actually two great lessons here:

(1) The speed and trajectory of a major market recovery very often mirror the violence and depth of the preceding decline.

(2) The equity market most often resumes its advance, and may even go to new highs, long before the economic picture clears. If we wait to invest before we see irrefutably positive economic trends, history tells us that we may have missed a very significant part of the market advance.

The overarching lesson of this year’s swift decline and rapid recovery is, of course, that the market can’t be timed—that the long- term, goal-focused equity investor is best advised to just ride it out. This doesn’t mean the same thing as “doing nothing.” I would argue that sticking to our plan when things get dicey is the opposite of doing nothing. We are holding steadfast to our principles.

• These are the investment policies we have been following all along, and if anything, our experience this year has validated this approach even further.

But what about the election?

I’m glad you asked. Simply stated: I believe it is unwise to exit investments you’ve working to accumulate for your lifetime financial goals because of the uncertainties surrounding the election.

Chances of getting out and then back in advantageously are historically very poor, and it would be malpractice for me to suggest otherwise. As I have all year, I urge you to just stay the course. But, just in case you need some evidence that I’m not crazy, here’s a chart to consider:


If the chart isn’t enough to convince you, let’s consider another major trend we are seeing emerge–the disappearance of yield:

Interest rates have steadily fallen over the last 4 decades, and while this did create a bull market for bond prices, it’s created a gradual compression in yields over time. With the onset of this pandemic, the Fed returned to zero interest rate policy almost immediately. Faced with economic uncertainty, many corporations decided to reduce dividends or forgo giving guidance for their earnings.

The current environment has created some interesting developments to consider:

Will companies begin to reduce phase out dividends?

How long will interest rates stay at or near zero?

What does the economic recovery look like in the near-term?

Some investors have many questions right now. That’s understandable. Seasons like the one we’re having are the very reason why it’s important for you to have a strong financial plan. It’s important to understand what you are doing and how it relates to your financial goals. However, it’s also important that you understand how your internal money machine works. If market volatility makes you nervous, one of the worst things you can do is remain glued to your phone or television watching daily gyrations. If you have friends or neighbors that are doom and gloom, maybe consider protecting yourself from their doomsday scenarios. The goal is to stick to your plan.

If you feel that your plan needs a review or if you’ve got questions you’d like to ask our team, let’s have a connection call.

*This post was created and adapted with permission from Nick Murray. I have been a loyal subscriber to Nick Murray’s newsletter for years, and occasionally he drafts something we may use to help our clients and readers. I feel it’s a must that he be given credit, even though he required none for this draft.


bottom of page