Warren Buffet once famously said, “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.” I’ve been getting a number of questions in the past few weeks about what I think is going to happen in the market. Is this a good time to sell? Do you think the market is going to keep going down? Should I be putting money in?
I think the only thing that I can say with certainty is that over time the market is expected to be up. It’s just as true that it can always be down tomorrow for a day, a few weeks, or even much longer. My basic philosophy is to not be too interested in what the market is going to do tomorrow since I have about the same probability of being wrong as I do of being right.
Investments should be chosen on their merits. Is the company being looked at in an industry that is expected to be around or able to adapt to changes? Are there customers? Does the company make money? Stock prices tend to follow other stocks just as much as they track a company’s book value or its earnings information. So even if you pick a “good” investment, the price could drop simply because other prices are dropping.
The same holds true for other types of investments such as ETFs, which trade on stock exchanges and are subject to the laws of supply and demand just like any other securities. Even mutual funds, which only trade once per day, are still priced based on what they contain (a mutual fund is simply a professionally managed collection of securities).
Anyway, to keep on track, The Krajniak Group operates on the belief that markets will be up over time, but that there is always the chance for volatility in the meantime. Sounds pretty tame, doesn’t it? Volatility is such a technical word. Technical things aren’t scary—they involve processes and stable ideas, right? Well, even if you know in advance that your account will be up and down, it doesn’t help when you open your statement and see that thousands of dollars have disappeared in a given month.
This leads to the questions I opened with: is now a good time to get out? The answer? No one has a crystal ball, so it’s an unreliable coin toss at best. Looking at an investment of $10,000 from 12/31/2002 through 12/31/2017, if you were to stay fully invested in the S&P 500, you’d grow your account value to $41,333 (it’s not possible to invest directly in an index so your return would be slightly lower, but stick with me). Miss the 10 best up days (that’s just over a week of not being invested) and your return drops almost in half to an end result of $20,873. Miss the 20 best days and you’re down to $13,629—barely worth the trouble over 15 years. 30 days? Now you’re actually losing money—your end result would be $9,374 out of the original $10,000. Keep in mind, that’s 30 days out of 15 years. Unfortunately, it’s not any more possible to see when the market will be up than when it might be down. It’s time invested, not timing, that makes the difference.
Now, not to backtrack, but I do understand that losing money can also be detrimental to achieving your goals. For that reason, I think it’s wise to consider the timing of your goals before deciding what to do. Given the unpredictable nature of investments, if you are only a year or two from using your money, you probably should be invested fairly conservatively (if at all). If this is money you won’t need to touch for 20 years, then my suggestion would be to do your best to stay invested and not be bothered by downturns. It’s likely your account will be up in the long run, and you’ve got the time to wait it out. The 2002-2017 time frame we looked at included 2008, which was a terrible year for investors. If you have the time, don’t sweat uncertain markets. If you don’t, consider some more conservative options.