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Leak #4 in Your Piggy Bank

Is there a fourth leak in your piggy bank?

Timing the market. Why do so many people try to time markets when the evidence shows it is a futile exercise that usually fails?

We believe the allocation to stocks works best when held for the long run. Market timing is not simply trying to buy and sell at best times. Chasing returns is a form of market timing. Switching from stocks to bonds can be a form of market timing.

Curran does not engage in timing in any way. We study companies and buy for the long run. We do not simply sell to buy something that seems better.

The stock market is designed to transfer money from the active to the patient. Warren Buffet  

In 2021 Charles Schwab published a study titled “Does Market Timing Work”. They portrayed five investing styles.   Each received $2,000 each year beginning in 2001, continuing through 2020. Each invested in the stock market represented by the S&P 500 index.

Peter Perfect was a perfect Market timer. He had incredible skill [or luck] and was able to invest at the lowest prices every year.

Ashley Action was consistently simple in her approach. On the first day of each year, she invested $2,000 on the first trading day of each year.

Matthew Monthly divided his annual $2,000 into 12 equal portions and invested at the beginning of each month. [dollar cost averaging]

Rosie Rotten had incredibly poor timing-or terribly bad luck. She invested each year at the worst time somehow managing to buy at the highest prices.

Larry Lingers never invested. He left his money each year in Treasury Bills insisting prices would move lower. He never did invest. He is still waiting for the right time to invest.

As you can see Perfect Timing did marginally better than Invest Immediately. Dollar cost averaging did about the same while even Poor Timing was only about $13,000-$14,000 less than Perfect Timing. The clear loser was Stay in Cash.

What is not understood is how difficult it is to time the market perfectly.

Consider the following chart provided by Fidelity

Disclosure: Past performance is no guarantee of future results. Source: FMRCo, Asset Allocation Research Team, as of March 31, 2021. The hypothetical example assumes an investment that tracks the returns of the S&P 500® Index and includes dividend reinvestment but does not reflect the impact of taxes, which would lower these figures. There is volatility in the market, and a sale at any point in time could result in a gain or loss. Your own investing experience will differ, including the possibility of loss. You cannot invest directly in an index.


Founder & Co-Chief Executive Officer