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The Daily Dow LEXINGTON, Ky. (July 15): Many investors who are coming to The Motley Fool for the first time in recent weeks must look at what's happened to the market lately and scoff at our insistence on not trying to time the markets. And it's true, of course, that it's very easy for us to say that one should stay fully invested at all times when we're in the midst of a great bull market move like we saw throughout 1995.
But now that we're in the middle of a market correction where the major indices have given back virtually all of 1996's fist-half gains, do we stand by our advice about staying fully-invested? Of course. Why? Quite simply, no one has a crystal ball.
Let's look at a very rudimentary form of market timing with technical analysis. Using moving averages is often seen as a good key to timing stocks or markets and at the end of Friday's session, much was made of the fact that the Dow approached its 200-day moving average (said to be a critical support level) and then bounced back from that level late in the day. Those with a technical analysis bent were claiming over the weekend that the bounce-back from the moving average line late in Friday's session was a positive sign of a continued gain today. Obviously, the market saw the situation otherwise.
On the other hand, some timers have been predicting a major correction for the last two years. Now that we finally seem to be getting one, they claim they predicted it all along. Somehow they're leaving out the part about the market's 50% advance in the interim. Now I don't intend to set up too easy a straw man to knock down by picking overly simplistic examples, but the point remains that no one can predict the market's movements in the short run with any consistency. And to try is almost futile, especially for an individual investor with a life that extends beyond the stock market and its fluctuations.
When the market slumps, then, even if the slump is of any significant length, to remain fully invested in an approach with a proven decades-long history is still the best way we know of to invest for the long haul. Sure it means we take our lumps when the market drops, and the last several weeks have had more lumps than institutional oatmeal. But years from now we feel that the long-term investor will have been better served staying invested rather than trying to jump in and out.
When the market falls, you'll see bears gleefully crow "I told you so." But keep your eye focused on what matters, total long-term return. Even one of the market-timing champions, Marty Zweig, boasts of a return for his service that fails to match that of the simple Dow Approach over the same time period. You make the call. If one of the best market timers in the business doesn't outperform an approach so simple that a grade-school student can implement it, what are our chances of timing the market successfully? I suspect mine are pretty slim. How about yours?
Whether the market's up 100 points or down 100 points (or some other amount), the same thing is true from our perspective: look down the road five, ten years. Do you think the market will be lower then than it is now? If you do, get out of stocks altogether. If you don't, then ignore the market's short-term movements and keep that distant horizon as your focus. Fool on!
Transmitted: 7/15/96
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