﻿I’m sitting on a plane somewhere over Oregon. I’m anxious and restless. I’m anxious because
right before I got on the plane in Seattle, I read an article headline about how the market
will start climbing back up any minute now. And I’m restless because I’m still 3 hours away from
landing at LAX and I need to get home as soon as possible to put in more buy orders before
my favorite index fund gets more expensive. Hi, if you are new to the channel, my name is Tae
from Financial Tortoise - a channel dedicated to helping the Sandwich Generation Master Money
and achieve Financial Security. Market timing is the obsession in the world of investing. It’s
nearly impossible to pick up a financial magazine without seeing headlines telling us which way the
market is headed. You turn on the news and every so-called ‘expert’ talking heads are talking about
what stocks are projected to go up and which ones are on its way down. And the internet is
full of a steady stream of advertisements from financial newsletter writers promising fantastic
returns if you will only subscribe to their fee-only newsletters and their market timing
advice. And there are just as many people shouting the opposite. They say that market
timing is futile. One would be stupid to try time when to enter and exit the market. Or predicting
which way the markets will head next is really a fool's errand. So with so much energy being spent
on this idea of market timing, who is right? Can you really time the market or is it really
a fool’s errand? In this video, we are going to get to the bottom of market timing. We’ll
see if market timing really is a fool's errand or are there opportunities to make money here.
The basis of market timing is to know when the market or a stock is low, so you can snap them up
cheaply. And then you identify when the market or a stock is high, so you can sell your cheap stocks
for a hefty profit. And with the outset of the COVID-19 pandemic, War in Ukraine and in general,
economic uncertainty, the trading activity has just increased with historic levels of volatility.
Individual investors, day traders and even hedge funds are jumping in and out of the market
trying to bank on this increased volatility. But the key to winning here is getting the right
accurate information about the market right? Good information will tell us what’s happening to the
market right now and where it will go in the near future. So, where can we get this accurate
information? Let’s check out a few options starting with the financial news headlines.
Unfortunately, this probably isn’t a great place to get good information.
Most often market “experts” can’t even agree with another on how the market is trending
or where it will go in the near future. There are articles published on the same day by different
experts who completely contradict each other. The quarterly earnings will be ugly. Actually,
no. The quarterly earnings won’t be so bad. Who do you listen to when you are trying to time
your buy and sell? Major news outlets can’t even agree upon the economic impact of the
Ukraine war with Russia. If you get your trading information from the financial news headlines,
you’ll be driving yourself crazy because you’ll browse through one contradicting information
after another. Alright, if headline news is not a good source, maybe how about the financial TV
shows? Jim Cramer, the host of CNBC’s “Mad Money,” is famous for his flamboyant personality where he
doesn’t just talk about stocks. He shouts them. He intersperses his show with guest
interviews and calls from real live viewers. But unfortunately, when we dig into shows like this,
it's easy to see how they are Wall Street’s marketing machine in action. These types of
shows are filled with commercials promising that if we use their advertised products or service,
we can easily outperform the market with accurate information. We can dance in when the market is
low and dance right out with a fat check when the market is high. What you’ll notice in these shows
is that the financial “experts” who appear in these shows are one of the most confident
people you’ll ever run into in your life. They know exactly where the market is headed,
what the interest rate is going to do and where to invest our money now. You’ll never hear them say
“I don’t know.” As soon as the program is over, viewers rush to their computers to start acting on
these “expert” advice unaware that what sounds so convincing is often cleverly disguised marketing
pitch for the product or service recommended. Wharton School of the University of Penn actually
conducted a study that compared Jim Cramer’s stock picks against the S&P 500 over a 17 year period,
and the data showed that the S&P 500 beat Cramer’s portfolio by a whopping 3%. 7%
vs. 4%. Financial TV shows are like any other TV show. They aren’t there to provide accurate
information, they are there to gain viewers. And sensational stock predictions sell ratings.
The accuracy of these predictions doesn’t matter. Alright. So
Financial TV shows aren’t a great source of accurate information for market timing either.
So how about some of these famous money magazines and their websites? We see these magazines in all
the bookstores, airports and supermarkets. And their websites seem to have some great information
about money. Unfortunately, articles and columns most beneficial to investors are oftentime found
tucked away deep within hidden parts of the magazine or website, and rarely make the home page
or the front cover. The home page and cover spaces are reserved for attention grabbing headlines
that bring new audiences. All major financial magazines and websites adorne their homepage with
headlines about the best stocks or funds you must own now. Prophecy about the future of the stock
market and other sensational attention grabbing titles. And most damaging to the individual
investor is that numerous studies back-testing the investment recommendations of cover articles
reveal that most badly underperform the market. But these businesses can't stay profitable without
attracting a crowd so they must play the attention game. No matter how inaccurate they might be. Can
you imagine headlines being filled with rational pro-index, slow investing stories? The magazines
won’t be able to sell anything. Nobody will visit their websites and they’ll go out of business.
So the reality is that as long as there is personal financial media, we will continue
to see these enticing but worthless “six hot stocks to buy now” headlines. So if we can’t
trust the financial media and the websites, what do we do? I’m sorry to be the bearer of bad news,
but if you thought you could make a killing by timing the market, I have to tell you, it really
is a fool’s errand. And don’t feel bad if you have done it. Not many of us can honestly say
we haven’t done it ourselves. I do it constantly and my wife has to slap sense into me quite often.
The Motley Fools, who interestingly is one of those big financial websites,
actually define market timing pretty accurately for us. They define market timing as
“a strategy based on predicting short- term price changes in securities,
which is virtually impossible to do.” While I don’t agree with all their articles and contents,
they nail this one on the head. It is a futile exercise to pick winning stocks or funds, because
no one knows accurately where a certain stock or the market as a whole will go. Everyone has
an opinion. But it is just that. An opinion. Not an accurate prediction. Unfortunately,
this fact does not stop thousands and millions of investors from trying. The logical alternative to
market timing and performance chasing is to invest in a low cost index fund, setting up
a long-term asset allocation plan and staying the course. When we see the market going up and down.
And we see friends and family making supposedly millions from their hot stocks, staying the course
is hard. Who doesn’t want a piece of the action. But have confidence in your plan. Low cost index
fund and appropriate asset allocation strategy will work if we simply have patience and give it
enough time by staying the course. Wall Street can’t promote buy and hold strategies because
brokers need trading activities to make money for their firms. For this reason, when you turn on any
financial news, expect the sensational headlines and seductive money making potential. Or better,
yet don’t turn it on at all. That’ll save you a lot of brain space and give you a piece of mind
that you aren’t being manipulated for someone else’s benefit. Wall Street and financial media
have a symbiotic relationship. The media want readers, viewers, listeners and most importantly
Wall Street advertising dollars. Wall Street also wants readers, viewers, and listeners,
but most of all. They want your dollars. With the help of these powerful media companies,
Wall Street has been very successful at getting investors to chase after last year’s winning fund
and market time. And since purchases and sales can now be made with the push of a button, it’s hard
for so many investors to resist the urge to trade more frequently than ever before. They think they
are buying low and selling high. But sadly, most often they are buying high and selling low. We
think most trading activities follow sound logic, but most often they are based on high emotions
driven by the financial media. Market timing is a futile effort. When it comes to investing,
heed this advice from Warren Buffet “Inactivity strikes us as intelligent behavior.” Less activity
ironically is better when it comes to investing in the stock market. And in the spirit of buying
boring funds for your long-term investment strategy, check out my video on “5 best Vanguard
index funds” to buy and hold forever here. And if you found value from this video I would appreciate
it if you could hit the like button. It really helps with the YouTube algorithm and allows videos
like this to be shared with more people. Thank you guys for watching and I’ll see you in my next one.