Market Timing and the Dangers of "Long-Term" Investing

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Market timing is possible. What? Heresy, you say! Invest for the long-term. Ignore market fluctuations. This is what we as investors have always been told. Sure, this can be good advice over a short period of time like a couple of months or years, as most people do not have the time or expertise to learn how to navigate the short-term ups and downs. However, when it comes to big investment trends we carry this too far. When the NASDAQ hits 5000 or the banks are letting people with $20,000 annual incomes buy $500,000 houses, you cannot just sit there and say you have to own for “the long-term,” otherwise you are going to find that the long-term could be much longer than you even suspect.

Bubbles happen! It is a matter of history. I remember when I was in high school reading a book called “Contrary Investing for the 1990s.” It actually detailed a lot of past investment bubbles and espoused a philosophy of exiting markets when everyone is irrationally buying the same asset class. Reading about such things as the “Dutch Tulip Bubble,” the “South Sea Bubble,” and even the stock market bubble of the late 1920s I kept telling myself, “This could not happen again. We are too smart and the financial markets are too sophisticated for that!” Boy, was I wrong! I remember as a Wall Street professional and money manager looking on with horror as internet companies with no business model surpassed the market caps of large established corporations. When you tried to tell ordinary people it was a bubble they would laugh at you and say, “The Internet changes everything” or “I am in it for the long run.” Then you would see professionals get on TV near the top and put out some of the most incredible price targets on the NASDAQ, that people today could probably not even believe it if the video did not exist.

Of course, that did not end well, with the NASDAQ today even roughly one half its 2000 high after eight years. We did not learn. Up until 2006-2007 real estate was the bubble that people on the TV refused to acknowledge as such. That was until the first half of 2007 when reality begin to set in. In less than a ten year history, people fell for two of the largest bubbles in history. Why? This same mentality of “buy for the long term.” This is called laziness. You cannot just sit on an investment as it is going up. You have to set yourself apart from the crowd and think, “Does this make sense? Are the prices justified?” These are the WORST TIMES to listen to the experts on TV. Think for yourself. All it takes is a little common sense and you can save yourself a lot of pain and agony. I am not saying that is is easy to capture the absolute top and bottom. You are most likely going to leave money on the table. However, in the larger scheme of things protecting your capital and seeking out the best possible return on investment using common sense as a guide is the best thing you can do for your wallet.

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