What Happens When You Fail at Market Timing


Amyr Rocha Lima, CFP®

6/29/20223 min read

"Buy low and sell high!"

And many, many investors *cough* speculators *cough* are tempted to follow this siren's song, believing they can successfully time the market.

On the surface, it is easy: watch the stock market, determine when stocks are “too high” and sell. Then, keep watching the stock market, determine when we have “hit a bottom” and buy. All you have to do is successfully complete these two steps.

Simple, right?

Well, except that there is no empirical evidence of anyone successfully accomplishing these two tasks consistently over time.

What is the Cost of Market Timing?

If you could consistently time the stock market, it would be great. However, as I stated above, it’s not something that has been accomplished systematically over a long period of time.

Which begs the question: “What if I do it wrong?”

The graph below highlights the cost of getting it wrong:

The impact of being out of the market for a short time can be profound.
The impact of being out of the market for a short time can be profound.

The impact of being out of the market for a short time can be profound, as shown by this hypothetical investment in the stocks that make up the Russell 3000 Index, a broad US stock market benchmark.

A hypothetical $1,000 investment made in 1997 turns into $10,367 for the 25-year period ending December 31, 2021.

Over that 25-year period, miss the Russell 3000’s best week, which ended November 28, 2008, and the value shrinks to $8,652.

Miss the best three months, which ended June 22, 2020, and the total return falls to $7,308.

Why Is Attempting to Time the Market So Alluring?

I’ve often wondered this.

After all, if there is no track record of success AND the cost is extremely high in trying and failing, why is this concept so alluring?

I don’t have any research to back this up theory, however, my thoughts are as follows:

The simplicity of “only” needing to make two decisions tempts people to try. Furthermore, a single successful decision reinforces the idea that “I can do it” and lures people in to try again.

The simplicity is hard to resist. When the stock market is at its most volatile, people want to “do something.” Buying or selling feels like you are doing something. What people miss out on is that sticking with a long-term strategy is also “doing something”.

Bottom Line

There’s no proven way to time the stock market - targeting the best days or moving to the sidelines to avoid the worst ones.

Therefore, staying invested and focused on the long-term helps to ensure that you’re in the position to capture what the market has to offer. And the best way to do this is to follow a financial plan.

Remember, sticking with a long-term strategy is also doing something AND it has a much better track record of helping people achieve their financial objectives!

Amyr Rocha Lima, CFP® is a financial planner who specialises in working with successful professionals age 50+ to help them reduce taxes, invest smarter and retire on their terms.

Amyr is patient, level headed and an expert financial planner. He has helped us work through our many questions to find sensible answers and to build a financial plan that is realistic, balanced and achievable. I would recommend him to anyone seeking advice on planning their financial future.

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Amyr Rocha-Lima MSc FPFS CFP Chartered Financial Planner Kingston upon Thames
Amyr Rocha-Lima MSc FPFS CFP Chartered Financial Planner Kingston upon Thames