I was skimming through the alltop.com listings of personal finance blog titles as I do from time to time, when I came across these two posts on Ranjan Varma’s blog:
I don’t know about you, but I rolled on the floor laughing … if you don’t see anything ‘wrong’ with the juxtaposition of these two headlines you’re wasting your time reading my blog 😛
But, it’s the first article – on market timing – that I want to talk about … because there’s an interesting (and very short) ‘slide show’ embedded in it that I want you to see:
There are two points that the slideshow ‘author’ makes that I want to discuss here …
Average is Not Normal
The creator of the slide show suggests that in the last 80 years the stock market has “averaged” a 10% return, but in only 2 of those years has it actually returned anywhere near 10%
Timing is Everything
The slide show creator then uses that data to (erroneously, in my opinion) reason that timing in the stock market is actually critical … for example, would you want to start investing here?
So, where would you rather invest? Come on, be honest?
Before I tell you where I would invest, let me tell you where the real big bucks are to be made …
… the real money is to be made in the second chart; investing at the peak of the market!
But, it only works if you can recognize the peak:
Jesse Livermore, the legendary trader of the 20’s and 30’s reportedly made and lost a fortune 4 times before he (understandably) blew his own head off. One of his greatest profits came when he SHORTED the market on the day of the famous stock market crash that heralded the beginning of the Great Depression. We’re talking so much money that the President of the USA called him to beg him to stop because he was singlehandedly making the market crash worse!
Given that I’m not Jesse (and, neither are you) my answer is:
I don’t care …
… you see, whether the curve is up in the beginning, smooth all the way, ziggy zaggy every which way in the middle, I only care what my starting and ending numbers are. And, what I do know is that, over a 30 year period (based upon ANY continuous 30 year period starting on any day that you care to name in the past 75 or so years … INCLUDING purchasing on the day before the greatest stock market crash in history … the one that saw the beginning of the Great Depression), the stock market will NOT give me less than an 8.5% return.
So, I will only buy stocks for 30 years as an investment (or less, if I feel like gambling) … or 20 years, if I only need a ‘guaranteed’ 4% return …
If the market happens to ziggy zaggy up in the right ways, and I’m lucky enough to get somewhere near the averages, well, there’ll be some extremely happy charities and surviving family when I die 😉