Chart of the Week: A Bullish Case for Resisting Market Timing

Jeffrey DeMaso

Portfolio Manager

StocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. are up 6.4% this month as of Wednesday night. Is this the beginning of a new bull marketA period during which stock prices rise significantly from recent lows for weeks, months or years. or is it simply a head fake before the next pullback?

If you have money to invest, that may feel like a key question, but for investors with time to be patient, it’s actually not that important. (And I say that knowing how frustrating it is to see prices decline immediately after investing.) I’ve found that even as little as a year can make up for unlucky short-term timing.

Consider an investor who bought a U.S. stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. index fund at the end of 2008. The S&P 500 index fell 18.6% over the first two months of 2009 and the investor likely felt discouraged by their purchase. However, by the end of 2009, the S&P 500 and our hypothetical investor’s fund were 30% higher than they were at the start of the year, despite the “early” entry into the market. And that’s before counting dividendsA cash payment to investors who own stock in the company..

Look out a little further and the results are even better. Three years after their purchase, the investor was up 46%. Five years on and they had more than doubled their money with a 112% gain.

In an ideal world, you could buy right at the bottom and ride the wave to the top. But you probably don’t have perfect timing (I’ve never met anyone who does). The remedy to imperfect timing is extending your time horizon—over time you’re likely to come out ahead of where you started.

Lastly, if you feel like you don’t have even a year to wait, well, you shouldn’t be invested in stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company.. Talk to your wealth management team about your financial plan and your portfolio’s allocation to make sure they suit your needs.