Trying to “time the market”—buying low and selling high—is by common consent impossibleby Andy Davis / June 18, 2015 / Leave a comment
Published in July 2015 issue of Prospect Magazine
Markets at the moment remind me of a machine at the soft play centre that our children love. The youngest is fascinated by this device, which makes brightly coloured plastic balls float before her eyes on jets of air. They totter on the updrafts in a precarious dance but if she stretches out her hand to grab them they fall to the floor.
Markets may not be imminently heading in the same direction but things feel precarious. Bonds of all sorts look dangerously expensive: there’s limited room for their prices to go up and plenty of room for them to fall if inflation starts to reappear, and as the long lull in interest rates looks to be nearing an end. Most equity markets do not appear conspicuously good value and in the case of Chinese shares a bubble may well be developing. Like others I speak to, I struggle to see what on earth to buy and fear that if I do take the plunge when prices seem stretched I run the risk of medium-term setbacks and a very long wait to see any meaningful gains.
Trying to “time the market”—buying low and selling high—is by common consent impossible to do with any degree of consistency. Retail investors are constantly warned off the naive belief that they can know when prices are cheap or expensive, but hope springs eternal.
Similarly, fund managers point out that our long-term returns can be hugely affected by whether or not we were in the market on a small number of the best performing days, so much so that missing out on the five or 10 biggest one-day rises of the past 20 years would leave you substantially worse off at the end of the period than if you had simply held on through thick and thin.
I accept all this, but it’s not enough to turn me into a buyer just now. First, I don’t like buying things that I think are expensive, which makes me guilty of trying to “time the market.” Second, it seems to me that, despite all the warnings that you should never attempt this because it’s impossible, in practice every…