Why we never time the markets
We all wish we could outsmart the investment markets. Built into the human psyche, no matter what is going on in the world, we fabricate a story about why now is an excellent time to tamper with the perfectly designed portfolio we already own.
Rather than trusting the market to deliver life-changing returns to the patient investor, we trick ourselves into thinking that it’s possible to know when the market will decline and subsequently advance again.
No one is immune from this temptation, but we believe it is possible to cure ourselves of the urge to act on it. Seeing it for what it truly is (a restless mind) can set us free from this most destructive of impulses. With a better understanding of the market and its functions, we believe that anyone can be convinced of the better alternative.
A beautiful design
The public investment markets comprise billions of people trading trillions worth of assets, primarily acting on the same publicly available information. This magnificently designed system determines asset prices on a willing buyer, willing seller basis.
While this usually results in asset prices being valued close to their true long-term value, we also know that when the emotions are high, the madness of crowds can result in extreme changes to the underlying prices of investment assets.
While it may be evident at times which extreme the market is erring on, the ability to know when these turning points will happen is not one we think anyone can predict.
Far too many people have destroyed their financial futures by becoming short-term speculators when the sensible thing was to be long-term investors. As John Maynard Keynes famously said, “the markets can remain irrational longer than you can remain solvent.”
As stewards of your hard-earned capital, we feel strongly about the need to be humble participants in the global investment markets.
Three reasons we never time the markets
There are three simple reasons why we will never try to time the investment markets with your money.
1. We don’t think anyone can do it. As already explained, markets move in cycles that can’t be predicted ahead of time. Additionally, looking for data that may signal a turning point is a fool’s errand; the market is forward-looking and can mean-revert before it’s evident that things are about to change.
2. We don’t need to. History being our guide, we know that the markets adequately reward those who invest with patience and discipline. Why risk your capital on a slight chance of being right? By avoiding “the big mistake”, we increase our chances of being right in the long term.
3. We don’t want to get distracted. Thoughts of speculation inevitably cause investors to think of the short-term. We prefer to keep our eyes on the long term, knowing that what happens this month does not matter. We do this knowing that short-term volatility will always be a market feature, and we accept this as the price of admission for better long-term returns.
The honest approach
In financial services, sadly, complexity and sophistication sell. While we will never try to time the markets with your money or ours, many professionals claim to be able to do this successfully. We prefer the honest approach, knowing that if we always tell you the unvarnished truth, your probability of lifetime investing success increases. We’re confident that this approach will stand the test of time.
