All too often I am faced with questions such as the micro “What do you think about XYZ stock?” or the macro “What do you think about the market?” My normal answer is “I don’t think about these things!” (More on my principles below.)
More than once, this has led to a set of raised eyebrows. They assail me with “How can you manage people’s investments when you don’t think about investing?”
“I do think about investing.
I don’t think about stocks or any instance of the price in the market.”
My response to this is “I do think about investing. I don’t think about stocks or any instance of the price in the market.” Normally the conversation ends there, but more than once I have gotten this follow up: “Well don’t you think that you would be better off focusing on when to get in and when to get out of the market?”
No one can time the market
To this, I respond: “I would love to know how to time the market, but no one has EVER proven that they have the ability to do so.”
My two investment principles
My investment philosophy is driven by two basic principles:
- Over time, there will be more people on this Earth.
- Over time, the world economy will grow.
If these are true—and if they are NOT, I don’t think I want to be living on the Earth in those times! —then I would argue that a solid strategy is to invest in a manner so as to take advantage of this growth. Do NOT try and time the market or “out smart” the market. Instead, pick an asset allocation, stick with it, and take advantage of the macro economic trends that surround the aforementioned two principles.
Well, what if someone COULD time the market?
Some people ALWAYS argue with me on this topic. They claim that they HAVE timed the market. Interestingly, when challenged to “show me the data,” no one ever shows up. Are there successful market timers out there? I believe so!!! Is their success tied to their intellect or to being in the right place at the right time? Well, the data would suggest the latter versus the former, but I’ll never close the door on the possibility that some new technique may be right around the corner. HOWEVER, if such a technique ever emerges, the flow of information available in today’s world almost guarantees that the advantage will be arbitraged away in a very short period of time.
NOW it is critical to have clarity on how you are investing
I encourage everyone to take the time to develop their own personal investment policy statement. Now—more than ever—it is critical to have clarity on how you are investing. Failure to do so can be quite costly.
You can see more information on this topic in this article.
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