Why you keep hearing "stay the course"

The Futility of Trying to Optimally Time Stock Markets

You will likely have heard of phrases such as “Catching a falling Knife”, “Dead Cat Bounce” or “Black Swan Event”, to mention but a few. These are all widely coined terms, used within the Investment Market Community, when evaluating how stock markets are reacting to highly usual (Black Swan) events.

Unless someone actually does possess that highly sought after, Crystal Ball, then endeavoring to optimally time markets, is truly a futile exercise. The prospect of exiting the market at the top and re-entering at the bottom, in a highly volatile environment such as this, is beyond all, irrespective of whether one’s intelligence is human or artificial!

Assuming one is not imminently in need of accessing their pension or investment funds, therefore the optimal strategy, history at least tells us is to stay the course and remain invested.

This is perhaps best evidenced by the chart below, which reflects market gains over a 40-year period. Quite apart from the fact that 31 of the 40 years end up positive, you can clearly see, some years experienced peak to trough swings of almost 50% in only a matter of months. Unless one did possess that Crystal Ball, allowing them exit and re-enter at the appropriate time, en-cashing at the wrong time and missing the subsequent up-swing can have a devastating impact on one’s portfolio.

The Bar Charts reflect the actual year returns whilst the Red reflects the low points reached over the course of that same year!

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Author: Ronan Goggin, B.A. Fin ACSI, Managing Director  

Direct Dial: 021-4521325 | E: rgoggin@olearylife.ie |  Mobile: 087 4188580