As most of us know, the stock market (Dow Jones Industrial Average) has been on a gut wrenching roller-coaster ride this year amid the coronavirus pandemic. Stocks started the year strong, breaking the record for the longest-ever bull market in February but then the unthinkable happened in March, a pandemic slammed the United States, which essentially brought most economic activity to a halt. In a matter of 22 trading days, the S&P 500 fell 30%. Ouch! Who would have thought at that time, the stock market was on the verge of an unbelievable advance that will make it back to all time high, which is about a 64% advance even as Covid-19 cases continued to soar. As of this writing (December 21), the Dow Jones Industrial Average is up 5.88% while the S&P 500 increased 14.39%, which does not include dividends.
While reading a thought-provoking commentary from the well-respected economist, Brian Wesbury, I was reminded, once again, about the perils of trying to time the beast (stock market). Yep, in this author’s humble opinion, it is an un-winnable game over time. During my 36 years as a financial advisor, I am yet to witness anyone who successfully buys low and sells high. Sure, I have seen one get “lucky” from time to time, but eventually he or she succumbs to the death spiral of market timing akin to one that believes they can repeatedly win at the casino. It is simply not possible to time the market, regardless of all the heavily credentialed gurus on CNBC and the like who claim they can.
According to Mr. Wesbury, “Imagine being told back at the beginning of 2020 that the world was about to be hit by a global pandemic that would lead to massive government-imposed shutdowns of business activity around the country. Imagine being told that we were going into a sudden (and sharp) recession which would see the largest single-quarter decline in economic activity since the Great Depression. As an investor with that knowledge, what would you have done? Would you bail out of the stock market completely, go all-in, or stay the course?
Most of us know the story of Chicken Little who ran around warning the barnyard of impending doom. I suggest that there is a Chicken Little inside each of us. We all get a little chicken when fear and doubt cloud our thoughts, as our lives are forever controlled by two emotions, fear and greed. History has shown repeatedly that often times the seemingly worst of times is actually the best of times to make money in stocks. In other words, when most folks are too afraid to act, they pull the trigger and sell.
Regrettably, the fact remains that the people who can control their “panic” seem to be the only ones who will be protected the next time there’s a run for the exits. Until we invent a cure for the human tendency to flee with the herd, there will be investors who sadly say, “I can’t believe I did that!” Everybody makes money when the market is rising. I will allow Jesse Livermore give you my closing argument, “What has happened in the past will happen again and again and again. This is because human nature does not change, and it is a human emotion that always gets in the way of human intelligence.”
Harry Pappas Jr. CFP®
Managing Director-Investments
Master of Science Degree Personal Financial Planning
Certified Estate & Trust Specialist ™
Certified Divorce Financial Analyst™
Pappas Wealth Management Group of Wells Fargo Advisors
818 North Highway A1A, Ste. 200
Ponte Vedra, Florida 32082
904-273-7955
harry.pappas@wellsfargoadvisors.com
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