Comments on: Why thinking you are smart enough to know where the market is going is so dangerous.

By: Retirement Nestegg Report – December 2007 | My Financial Journey

Retirement Nestegg Report – December 2007 | My Financial Journey — Thu, 01 Apr 2010 17:04:54 +0000

[...] A pretty steady and boring end to 2007 for me. For the year though my retirement nestegg grew by $26,362 or 56%, which is what really counts. I sometimes wonder if I should only do quarterly or even yearly reports on my retirement nestegg, just because if you take yourself too seriously when looking at results in the short term you may miss the big picture. When it comes to investing, especially for retirement you should not be concerning yourself with month to month or even year to year performance of your investments. It is way too easy to get caught up in the moment and make a stupid mistake because you reacted and took action on something short-term that will have no affect on your long term success. A couple of months ago I wrote something to this effect. [...]

By: The best of MyFinancialJourney.com in 2007 | My Financial Journey

The best of MyFinancialJourney.com in 2007 | My Financial Journey — Thu, 01 Apr 2010 15:26:57 +0000

[...] Why thinking you are smart enough to know where the market is going is so dangerous. – please don’t adjust your retirement plan based on short term results or doom and gloom forecasting. [...]

By: Ryan from ryanhegs.com

Ryan from ryanhegs.com — Wed, 31 Oct 2007 04:13:08 +0000

MJF, I have to both agree and disagree with you on this one. I think your advice is excellent, but I personally wouldn’t go as far as to say “you should never get out of the market” or that “you can’t time the market”. There are many investors who have done quite well and beaten the indexes by timing the markets in one way or another. While their success in be partially due to luck, I don’t think we can write them or their strategies off entirely.

I think the point to be made is that most of us do not have the knowledge or time to dedicate to accurately research, analyze, and manage our portfolios in a way that can successfully outperform the market averages. There are a rare few that do, and some do quite well. Unfortunately many investors (or most at some point in time) tend to think they have an edge on the rest of the market and end up missing out on the long-term rewards of the market while chasing short-term profits.

I personally don’t trust myself to try to “time the market” with my family’s long-term savings or retirement. I would consider myself an investing rookie and I don’t have the time, knowledge or industry insight to take that risk, so I keep a diversified portfolio invested in several funds. However, I do have some money (money that I can bear to take risks with) that I choose to use for short-term investments – sometimes buying stocks that I believe are undervalued, sometimes taking advantage of arbitrage situations, etc. I find it to be educational, fun, and (so far) profitable. Again, this is only a small percentage of my investing and only a handful of stocks and ETFs that I have the time to keep up with. So far I have over a 50% return on these investments (much credit to market conditions and some luck).

I guess what I’m getting at is that there is a case to be made for recognizing investment opportunities and taking advantage of them. While we need to realize our limits and that there is a good chance we are not “above average” investors…I wouldn’t necessarily instruct people to stick their head in the sand and “completely ignore every bit of financial advice that is out there trying to guess where the market is going and just blindly follow your investing plan” either.

By: MFJ

MFJ — Thu, 04 Oct 2007 23:39:56 +0000

@Jim – In my humble opinion you should NEVER get out of the market. To your point it sure is easy looking backwards and saying yeah I should have gotten out of the market in 99-2002, but the problem is you will never know which way the market is going to head and neither will any of the experts. The market goes up a lot more than it goes down so if you are out of the market you are essentially throwing away money.

Let’s say you had the foresight or were lucky enough to pull your money out in 2000. When would you have gotten back in? Setting an arbitrary stop loss is pointless in my opinion as all you are doing then is selling low and buying back in later when the prices are on back up.

The way to survive in bear markets is to keep investing regularly regardless of what the market is doing.

By: Jim

Jim — Thu, 04 Oct 2007 23:19:14 +0000

Question: Is there a time when one should get out of the market? During the 99-2002 bear market, those who rode it down lost HUGE amounts of years long investment returns. In my case it took almost six years to recover to the same amount invested. Was I an idiot? Should one set a downside so the losses are limited to 20%, 30%, 50%? I can’t imagine riding this bear to the bottom is the thing to do.

By: Shadox

Shadox — Sun, 26 Aug 2007 02:06:02 +0000

Right on the money, however the statement regarding the returns coming from just a small number of days is not a useful argument. The reason: that type of analysis only assumes you are missing out on the good days, while still hitting all the bad days. You couldn’t do that if you tried.