Is Time or Timing More Important?
Transcript:
Easan Arulanantham:
Timing the market, not timing the market is the way to go.
Tom Vaughan:
Yeah. So, you know, this is an interesting one, I actually had a client, write me this quote not too long ago, you know. So what he’s saying is that time in the market is more important than timing the market. So in other words, being in the market, and sticking in the market, in whole is more important than trying to get in and out of the market as far as that goes. And yeah, you and I, were actually having a conversation recently about that. And, you know, so let’s say that 2008 came along, I’ll tell you a story that I thought was kind of funny. So I was meeting with a client after 2008, in our portfolios were down, the market was down, you know, the total stock market index was down and was 60%. And I think, you know, across the board with most advisors, their accounts were down from those highs. And this lady was talking to me, she said, Why didn’t you get out? And I was like, Well, you know, I just don’t have that kind of crystal ball. And she says, Well, you don’t need a crystal ball, you just need to know when to get in and out. I’ll never forget that conversation. But what the problem is, in terms of getting in and out is how do you know when it’s going down? Right. Okay, so there are some people that have gotten out. And there’s some famous situations, although a lot of times, when you look at their overall strategy, they’re getting out all the time, and they’ve been wrong the last 20 times, and they’re right this time. And so sometimes that kind of offsets what gains they might have made.
But oftentimes, you need to let it fall some to figure out that it’s going down, in my opinion. But if you look at the stock market charts really closely, they spend way more time going up and down. And so you don’t have a lot of time to get out. And before it’s all all over. And you could be wrong. Anyway. As far as that goes, I’m much more in favor, if you’re going to do anything of staying in, let’s say have a 60 or 70% allocation, stick with that. Maybe make some rotations in there. So we I took a look in the last downturn. And during that pandemic, I looked at what was falling less. And because to me, that meant the market was looking at that as more important and something they wanted to hold on to and did some rotation since some of those things and they did they bounce back faster. And the market continued to like those for quite some time. So you know, that’s probably a better strategy. That’s where you’re staying in the market, trying to time the market, especially that wholehearted in an out aspect. Extremely difficult. And probably, there aren’t a lot of people that have been able to make that work that I know of.
Easan Arulanantham:
Yeah, if you’re able to do it, most of the time, you’re not going to be working after a while you’re going to be running, you’re sailing off into the sunset phase.
Tom Vaughan:
Yeah, exactly. I mean, if you’re really good at figuring out when the markets gonna drop off, and you can get out at some high or close to high, and then even more importantly, gotta get back in. So let’s say you do get out at a good spot. But then you got to get back in at a lower spot. And sometimes again, you’re waiting for that recovery. And all of a sudden, you’re back above where you got out, he should have just stayed in, right? I mean, because it’s not just two, it’s two things you got to get out at the right time and back in at the right time. Yeah, if you can do that. Yeah, you’re a big time money manager, maybe. And or you’re just sailing around the world and some 120 foot yacht or something. Yeah. Because that’s a skill set that’s very, very difficult to to accumulate, that’s for sure. So and that’s why that saying is, you know, you’re better off time in the markets more important, the market goes up over a long period of time. I mean, we’ve had two giant downturns in the last 25 years, the markets way up in that 25 year period. So you know, that that’s the key, find your risk tolerance, so that when those do go down, you don’t panic, right? That’s critical. Find your you know, your place in that overall scheme. So, you know, to me, that’s how much stock you have is it 20% 5070 100% stock, find your risk tolerance, I understand what that means. And then and then try to stay with that amount of stock. Maybe make some small changes when things happen, rotation wise inside the stock market, but you still stay there. Alright. That That makes sense to me.