- Smart Investing
Is the crash over yet? Why it is hard to time the market.
The TSX has experienced a 1400 point plunge over the last week almost, but not quite, meeting the definition of a "market correction" (at least 10%). The US markets have been hit harder and have officially experienced that market correction as we've seen in the news.
So, is it over yet? The pundits have come out on both sides of the issue, with some confidently predicting on Monday morning we'll return to the recent good old days of ever increasing stock prices while others just as confidently predicting that the markets have room to fall.
The reality is that no one really knows. The market movements are based on thousands of known and unknown factors - we talk about many of the most important ones - corporate earnings, interest rates, geopolitical tensions, unemployment, inflation, government policy. I could go on and on. But the way these factors interact is impossible to understand so people can only give general statements without specific timing attached. For example, people have been predicting the latest correction for the last year (mostly because of stock prices were rising faster than earnings growth), but no one was able to predict its exact timing. Or, if anyone really did predict it, they are now sipping cocktails on their private island in the Caribbean and not telling us how they did it. And that is the key point in all of this. If someone really could time the ups and downs of the market, they would simply make millions of dollars with that knowledge - they wouldn't tell us.
People who study the market for a living do have advantages over amateurs as there are things they look for that will help them make better decisions about when to invest and how to invest. They also have access to a legion of analysts who contribute to that decision making. But for amateurs, it is guesswork.
So, as always on this site, our advice is to follow your long term strategy and stay focused on the key principles of equity investing and the long term strategies for investing and overall portfolio management. If that strategy called for a move into equities, invest with confidence. If this is in fact the start of a bear market (20% drop from the peak) you've already missed half that drop by waiting until now. And if the market starts on an upward climb again, you can pat yourself on the back and tell your friends that you timed the market. If your strategy called for a move out of equities, the opposite applies.
Just don't try to time the market. But if you do try it and succeed, please send us a note on how you did it before you head to that Caribbean island that you just bought.