<THE FOOLISH FOUR>
by Robert Sheard
LEXINGTON, KY. (July 30, 1998) -- Every once in a while, I get to browsing through our archives, and I'm continually amazed at the number of Foolish Four articles I've written to answer the question about timing one's entry into the stock market. Here's one from about a year and a half ago that struck me as particularly current (I've revised the numbers to make them accurate for today's market):
No matter how much we stress that market timing is one of the most difficult (dern near impossible) ways to invest, the single most frequently asked question I've received over the last several years is a pure market-timing question: "I know one shouldn't try to time the market, but is now the right time to start or should I wait for a correction since the Dow's so high right now?"
The question touches on the most difficult aspect of investing, the fear of losing money. Despite all the data, all the theories, all the historical records, it's still our first impulse to worry, especially with the market near a record high level.
It's an impossible question to answer, though, because what's really being asked is for some secret that I might have that I'll share privately but not publicly. "Ah come on, DowMan, I know you have to say don't time the market in the forum, but what do you really think? Is this a good time to start or should I wait?" When I say the same thing again, ("Don't bother timing the market"), it's easy to detect some skepticism in the reader's reaction.
But it's really what I believe. If you are investing for a long time, if you are using an approach like the Dow Approach and its out-of-favor selections, if you're prepared to stick it out through thick and thin, then absolutely, this is the time to begin.
The market has to make new highs periodically. It's not like gravity, much to the pundits' dismay, where what goes up must eventually come down. Our economy grows, period. Sure it has rough patches and doesn't grow in a straight line, but it doesn't take a Nobel-prize-winning economist to understand that (a good thing, too, I can assure you). As the economy grows, the businesses that comprise it will expand as well, and market prices will continue to grow. So the Dow must continue to increase over time. It would be abnormal for it not to.
So if you're wondering whether you should wait to start a long-term Dow portfolio, look backwards and forwards. Where was the Dow ten years ago? (About 2,100.) Where do you think it'll be in another decade? (Given an 11% growth rate, somewhere above 25,000.) Even four years ago, when I was receiving the very same question about whether or not to wait for a correction, the Dow was under 4,000. Sitting out these last four years waiting for that big correction was costly indeed.
Believe it or not, then, I still believe the long-term investor has no business trying to time entry and exit points from the overall market. In more than 70% of the cases, so go the various studies I've read, the market goes up. If you're timing your entry point, it's like playing the long-shot at the track. One out of four times you might be right. But those aren't the kind of odds I want to put behind my portfolio. How about you?
Current Dow Order | 1998 Dow Returns
[Robert Sheard is the author of the The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and your local bookseller.]
07/30/98 Close
Stock Change Last -------------------- UK -1 1/4 47.44 IP +1 5/16 43.63 MO + 1/4 44.13 EK +2 7/16 85.50 |
Day Month Year
FOOL-4 +1.04% 4.91% 13.92%
DJIA +1.26% 0.84% 14.15%
S&P 500 +1.58% 0.80% 17.78%
NASDAQ +2.03% 1.31% 22.24%
Rec'd # Security In At Now Change
12/31/97 206 Eastman Ko 60.56 85.50 41.18%
12/31/97 291 Union Carb 42.94 47.44 10.48%
12/31/97 289 Int'l Pape 43.13 43.63 1.16%
12/31/97 276 Philip Mor 45.25 44.13 -2.49%
Rec'd # Security In At Value Change
12/31/97 206 Eastman Ko 12475.88 17613.00 $5137.13
12/31/97 291 Union Carb 12494.81 13804.31 $1309.50
12/31/97 289 Int'l Pape 12463.13 12607.63 $144.50
12/31/97 276 Philip Mor 12489.00 12178.50 -$310.50
CASH $754.73
TOTAL $56958.17
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