Nearly every investor thinks, at one time in their life, that they can beat the market. Well, experienced investors know better. While there are many complex and computer-driven investing models that look like they work on historical data, there is no proof that any of these models actually work. In our opinion, the best investment methodology is to simply buy and hold.
Having invested for over 20 years, I’ve personally made and lost a lot of money. I lost everything after the 2000 tech bubble and then again in early 2009. Luckily, I didn’t give up on investing and made most of the money back. I had many friends that sold their stocks and cashed out of their 401ks, only to see the market come screaming back.
While I agree that it would be nice to have sold before the downfalls, doing so would likely lock in your losses and insure that you miss the next upside. For the market bottoms are never predicted or known at the time you need to invest. And if you miss just a few days of the rally, it could be impossible to catch back up to the market. And besides, who likes to buy stocks after they’ve rallied? Its hard to buy something that was 10 or even 20% cheaper just a few days or weeks ago.
With all that said, I know how horrible a falling market feels and have a way to adjust our simple strategy of long term buying and holding to help ease that feeling. To suit your feelings (because thats mostly what investing is to people) take a buy and hold strategy and when things feel bad, just sell a small portion of your stock. It will give you peace of mind that at least you did something (you weren’t helpless) and you may or may not be able to buy your position back for a lower price in the future. And when you feel good about the market, adjust your portfolio to own more stocks. But remember, it’s best not to let your feelings get in the way. Most recessions and stock market crashes are over about the time people realize that they are happening. And even if the economy is in recession, the stock market is a forward indicator and usually goes up before the recession is over.
So I guess what I’m saying is that I’ve tried to time the market over the years and have seen others try the same. It never works, so I suggest you just build a diversified portfolio and keep investing on a monthly basis if you can. Hold your stocks as investments and not trades. If you want to take on more risk, mix in some emerging market and faster growing segments of the market, but don’t try to buy and sell based on your feeling of the market!