41

Stop Trying to Time the Markets!

in Money Basics, Rants, Videos

[If you cannot view the video above, click here to go directly to the post]

Overview of topics discussed in video:

  • [0:05] – The Dow Jones closed above 10,000 yesterday.  Stock market up 50% since March.
  • [0:30] – The bad news of this event and why it makes me bonkers.
  • [1:05] – Crossing some ‘magical’ number doesn’t mean anything.
  • [1:30] – Buying into the hype is dangerous
  • [2:10] – The only ‘market’ worth timing in our lives…  is our own personal markets.
  • [3:00] – You or I can’t predict the market any better than Milligan can

[Please ignore the epic lighting fail in the video...  I have limited equipment on hand.  Sigh.]

What are your thoughts on all the media speculation?

Are you changing anything about your finances based on this stuff?  Are you sick of all the coverage or does it have it’s place? What ‘markets’ are you trying to time?  Let everyone know below!

{ 36 comments… read them below or add one }

kosmo @ The Casual Observer October 15, 2009 at 10:48 AM

I don’t try to time markets. The people who focus on investing full time seem to have enough difficulty doing this consistently; why would I assume that I could do a better job?

Instead, I focus my energy on phishing sca … er, I focus my energy on working harder. Yeah, that’s the ticket :)
.-= kosmo @ The Casual Observer´s last blog ..Health Care: Carrot or Stick? =-.

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Baker October 15, 2009 at 12:52 PM

Wouldn’t assume! ;-)… nice touch on the phishing sca… I laughed aloud. :-)

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Mike Piper October 15, 2009 at 11:08 AM

Agreed. Not surprising given that it’s pretty much the whole idea of my blog that day to day market changes don’t mean anything. :)
.-= Mike Piper´s last blog ..The Best (Lowest-Cost) Index Funds =-.

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Baker October 15, 2009 at 12:52 PM

Ooooooooh, so that’s why I like your blog! ;-)

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Emily October 15, 2009 at 11:14 AM

Hype is always so deceptive. Our financial advisor always says that when success comes or revenue increases, don’t change your lifestyle or spend any differently than before the upturn!

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Betsy @MarriedwLuggage October 15, 2009 at 11:25 AM

Baker, you have to check out the article in the New Yorker this week called “The Secret Cycle.” I’m not one to follow the markets closely, but I found it fascinating to read about people who spend their lives researching obscure data and trying to predict the market. The author is Nick Paumgarten and it is in the October 12 issue. You can read a part of the article online at http://www.newyorker.com/reporting/2009/10/12/091012fa_fact_paumgarten.

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Baker October 15, 2009 at 1:18 PM

Betsy, link is broken! E-mail me or comment here and I’ll try to update it.

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Stephanie PTY October 16, 2009 at 1:41 AM

Baker, just remove the . from the end of the link and it works :)
.-= Stephanie PTY´s last blog ..Change for Climate Change Without Breaking the Bank =-.

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Kevin M October 15, 2009 at 12:08 PM

Are you going all video on this blog or is this an experiment? Personally I’d rather read stuff than watch.

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Baker October 15, 2009 at 12:53 PM

Not going all video, but would like to do some. Maybe 1 video, 1 large text a week. Thanks for the feedback!

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Tyler Karaszewski October 15, 2009 at 12:26 PM

Quoting you (may not be exact, didn’t want to go back and replay it):
“Very few people can make this work … so stop trying.”

Why does this apply to stock markets, but not, for instance, blogging for a living?

Also, the title of this article should be “Don’t buy into media hype” or something, because nothing in the video has anything to do with timing markets. Ironically, this video is now one more piece of media in which someone cares a lot about the current state of the dow jones and how the world is reacting to it. Maybe it’s anti-hype, but it still adds to the general feeling of “a lot of people think this is significant and worth getting excited/upset about.”

Even if the video *was* about trying to time the market, I still think “stop trying to time the markets” too simplistic advice. If that’s true, it means other things like “a recession is a good time to buy” and even “buy low, sell high” don’t work.

Also, your discussion of investing in yourself makes sense, but talking about “timing your personal markets” really doesn’t mean anything in this context. It actually implies that you don’t know what “timing the market” means if you think (for example) improving your marketable skill set has anything to do with market timing. There’s no timing involved at all.

Personally, I agree — investing in yourself directly is preferable to investing in stock markets and publicly traded companies, up to a point. There are a lot of problems that are easier solved with money than with learning new skills, and there are a lot of things that you can only do once and then you’ll have to find somewhere else to invest (paying off debt, for example).
.-= Tyler Karaszewski´s last blog ..Summer Update =-.

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Baker October 15, 2009 at 1:11 PM

I think the best way to respond is sort of item-by-item…

First, I think someone has an exponentially better chance of making a full time income blogging than by (short-term) gaming the stock market. And, to be honest, I would give the ‘stop trying’ advice to a large amount of people when it comes to blogging.

I was hoping people would make the leap that ‘buying into the market speculation game’ encouraged people to try to time the market. I said this in a section, although, maybe not as clearly as I could. And adding the feeling that this is something to be ‘excited/upset’ about is… well, the opposite of what I wanted! I wanted to convey the message of ‘not caring’ about this stuff.

The title is simple just like everything else in personal finance (including your examples). Unfortunately, it’s hard to sound off on each reader’s individual situation without… you know… knowing it. So the PF world is stuck trying to remind people of general, simple concepts by spinning it in their own way and adding their own flavor. That’s what I’m out to do. :-)

In regards to ‘timing’ your personal market. I meant for example, maybe you have a chance to volunteer in a third world country for a couple years (a don’t think you *will* have the opportunity later) or maybe you have a job offer that requires you to move your family but increases your earning potential and diversifies your resumes, etc…

Those are the things worth ‘timing’. The message was don’t ‘time’ things you can’t control or predict. If you’re going to speculate, focus on your own markets like in the examples above.

Lastly, I’m not knocking investing or in retirement. I would just advocate having a strategy that doesn’t encourage you to be involved in the ins and outs of everyday market hype and speculation! :-)

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Tyler Karaszewski October 15, 2009 at 1:29 PM

I just want to follow up with: If “stop trying” is legitimate advice for a lot of bloggers, then my critical comments have to be well above the line that defines “acceptable”, I think. ;)
.-= Tyler Karaszewski´s last blog ..Summer Update =-.

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Retirement Savior October 15, 2009 at 12:40 PM

This hype is certainly a dangerous thing. I hope it doesn’t cause people to panic and buy in AFTER the 50% rally has taken place.

Speaking of hype, my grandmother recently asked me about moving her savings into gold. We would be much better off if we just turned off CNBC and other hype spouting venues.
.-= Retirement Savior´s last blog ..Competition for Yahoo Finance Stock Data =-.

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Baker October 15, 2009 at 1:19 PM

Haha. Yeah, that’s actually sort of a sad story if you think about it. Stuff is contagious.

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Mike Piper October 15, 2009 at 12:56 PM

In reply to Tyler:

You ask why Adam’s statement “Very few people can make this work … so stop trying.” applies to stock markets but not to blogging for a living.

The difference is that if you start building income from a blog, even if you never make a living from it, you’re better off than you were before. In contrast, if you attempt to invest based on day-to-day market movements, and you don’t succeed, you’re in a significantly worse situation than you were before.
.-= Mike Piper´s last blog ..The Best (Lowest-Cost) Index Funds =-.

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Baker October 15, 2009 at 1:13 PM

Very good point, I didn’t even consider!

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Tyler Karaszewski October 15, 2009 at 1:26 PM

If your time is worth nothing.
.-= Tyler Karaszewski´s last blog ..Summer Update =-.

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Mike Piper October 15, 2009 at 2:08 PM

Day-to-day market timing is also time intensive. With either of the two, you’re spending several hours everyday. With one, you come out ahead financially if you fail, with the other, you don’t.
.-= Mike Piper´s last blog ..The Best (Lowest-Cost) Index Funds =-.

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Colin Wright October 15, 2009 at 12:56 PM

The only really sound investment is in yourself. Spending your money on education and experiences (and eliminating debt, of course!) is something that you’ll never regret and forever gain interest on.

Also: there are no ups and down. Unless you count old age. Memory usually takes a hit in the later years, so at that point you might start investing in holobucks or whatever people are using for money by then.
.-= Colin Wright´s last blog ..The Future Will Suck =-.

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Baker October 15, 2009 at 1:15 PM

Amen. Saving for retirement/building wealth is awesome. It’s just we put so much value into the weekly motion of the markets. And that we prioritize it above the ‘sound’ investment of ourselves (as you pointed out).

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Diggy - Upgradereality.com October 15, 2009 at 2:09 PM

Hey Adam,
Cool that you cover markets also.
I think we are closer to a massive downturn in the markets than a gain. This type of run up in the market is nearly unprecedented, mostly due to an incredible injection of money into the system via federal governments (ie. they created money out of thin air to pump up the markets after the crash and try to get the economy going again). This is going to have a massive inflationary effect a few years down the line.

Although stock markets are up so much, real economic conditions are not better, unemployment is still at record high levels, foreclosures are insanely high, there is more debt than ever before. This whole stock bounce in my opinion is an illusion and somewhere between now and the end of next year we may take out the lows of the stock market from a year ago (my personal viewpoint).

Lets talk again about this in a year :)
Cool seeing you on video!
Cheers
.-= Diggy – Upgradereality.com´s last blog ..12 Favorite posts on UpgradeReality =-.

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Diggy - Upgradereality.com October 15, 2009 at 2:13 PM

An article you may enjoy reading if you are interested in financial markets is:

http://www.zealllc.com/2008/spxbears.htm

Adam Hamilton explains secular and cyclical markets, and how over a period of 17 years stocks can trade sideways, lose 50% over a few years, and then gain 100% again and so on and so forth, where over the entire 17 years, it may have not changed its ending level.
.-= Diggy – Upgradereality.com´s last blog ..12 Favorite posts on UpgradeReality =-.

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Foxie | CarsxGirl October 15, 2009 at 4:01 PM

My thoughts on media hype — news? What news?

I just don’t watch it, to be honest. :) I can see enough of what’s going on loading msn’s home page to keep me aware of the latest news, but certainly don’t expect me to know all about what’s going on. The market goes up, the market goes down, and for some reason when it went down big-time a lot of people decided they needed to watch it, too. So it may be worse now until it eventually stabilizes for a bit, and people decide to move their attention elsewhere, to the latest whatever.

As for the video, that’s rather cool. Do you use an actual camcorder for it? (Since so many cameras now have camcorder functions too, but I don’t use it much.) Dunno if it’s ever something I would do, but I shouldn’t ever count it out yet. ;)
.-= Foxie | CarsxGirl´s last blog ..Installing JDM Tail Lights on a USDM S13 =-.

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Baker October 15, 2009 at 4:13 PM

Just ‘not watching it’ is the best advice there is! ;-)

Yeah, I just use a normal non HD digital video camera. It’s primarily a video camera, though. I’m going to be looking at getting an HD Flip or something and a light of some sort for better quality in the coming weeks/months.

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Foxie | CarsxGirl October 17, 2009 at 1:37 PM

I’ve been thinking of getting a Flip myself. As much as I like photography, video does some things better. :) And they aren’t terribly expensive either, which is a huge plus.
.-= Foxie | CarsxGirl´s last blog ..Installing JDM Tail Lights on a USDM S13 =-.

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Jacqui October 15, 2009 at 5:28 PM

I had to laugh at ‘And to be honest if you’re watching this, that’s not you’ :-). It’s been quite reassuring over the last year to be almost able to just sit back and watch the whole thing unfold. Our retirement savings are all in diversified managed funds that we’ve always understood are going to have big swings up and down – there’s been no need to panic or move anything as part of the plan has been that this will happen, and that that’s fine as there’s a long time until we need to touch them. A good time for once to not have had extra funds that we could have been playing around with.

Given that things have been a bit easier here in Australia though. Nothing seems to have been able to have stopped the spending over here! And now the interest rates are already rising and those of us with mortgages have got to pay for that.

Good job with the videos by the way!
Jacqui

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Gordie Rogers October 15, 2009 at 7:38 PM

I agree with you, Baker. I still don’t quite understand how buying shares is creating anything. Isn’t it just gambling? How on Earth are share prices determined? I’m in the dark.
.-= Gordie Rogers´s last blog ..Is There Anything That’s Unforgivable? Part 1. =-.

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Financial Samurai October 15, 2009 at 8:50 PM

I agree. I’ve made a ton in the stock market, and I’ve also lost a ton.

The same people stupid enough to chase the market NOW are the same folks selling last October.

I do believe in continuous asset allocation though.

At any rate, congrats to all for enjoying the BULL MARKET! Next stop, Dow 50,000! l
.-= Financial Samurai´s last blog ..Party Like It’s 1999! 10 Takeaways From This Recession =-.

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Credit Card Chaser October 16, 2009 at 12:29 AM

The thing that drives me the craziest is when I happen to see those late night infomercials that pitch some type of “press the green button” financial software that is based purely on technical analysis and market timing. IMO technical analysis is basically a load of nonsense for the most part.

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Austin October 16, 2009 at 4:21 AM

About a year ago when I was starting to finally pay attention to my finances and the financial world I had a talk with my grandpa. He’s done well for himself and he’s old school with his money beliefs. He owns a lot of individual stocks and doesn’t believe in index or mutual funds because they have “poor returns”.

We were talking about some stock and he said to me, “you should check out (stock) because they have some great products coming out”. At the time, I said, “hmm, ok” but now I realize how his advice is nothing more than SPECULATION. Even if they are coing out with great products, who knows how they’ll do. There is no guarantee at all and he was just wasting his time reading into this stuff.

This is the same speculation that a majority of financial news shows, magazines, podcasts, books, etc. are based on. It’s dangerous for the average investor who is just putting his or her money away into funds and not worrying about it. But this is the world we live in, and we must learn to avoid this hype in order to avoid poor money decisions.

Good topical post.

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kenyantykoon October 16, 2009 at 5:05 AM

the only thing that i am changing about my finances is putting more wisdom and knowledge into my investing and not jumping into things that i have no idea who they work with the premise of quick profits

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Bobby October 16, 2009 at 9:10 PM

I stepped off the rollercoaster some time ago. I’d rather play friendly low-stakes poker with my buddies–at least it has a social aspect and you can bluff.

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Jason of Kim & Jason October 17, 2009 at 10:20 PM

I always found it funny that when the media was so eager to trumpet the downturn (and all the doom and gloom), one of their favorite catchphrases was, “We’re living in UNCERTAIN times.” They have a point, but I had to ask the question, “Are we ever living in CERTAIN times?”

Heck no.

No one has any guarantee about tomorrow and there’s no use worrying about stuff out of our control. But it’s so easy to get caught up in all the hype we get from the media (positive or negative.) In my book, spending time and energy improving yourself is always time and energy well spent.

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Suzanne October 19, 2009 at 2:31 PM

Like your blog. Have to say I’m with Kevin on the video vs. text post. I can waste time at work reading stuff, but I really can’t watch videos. By the time I get home at night the last thing I want to do is surf. That’s for more hedonistic things. Like sleeping.

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JMoney January 1, 2011 at 3:06 PM

Not to blast the post because its great and so are the comments but I’m surprised no one mentioned value investing which is a method that has produced the great long term success and is based on analyzing the overall financial health of business before buying its stock.

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