Market timers like to think they can capture large returns by jumping in the market to profit during periods when stocks are up, and jumping out of the market when stocks are down. This strategy may work in the short run, like a sprinter who overtakes a marathoner at the beginning, but the gains are reversed abruptly by events that could never have been predicted.
Many researches have proven that the biggest portions of investment returns come from short periods of time but trying to identify those periods and coordinate stock purchases to them is nearly impossible.
Trying to time the market creates the danger of being out of the market right at the time when the big moves occur.
If you just go by the rate of return, Warren Buffett may not be the best investor. There have been many other sprinting money managers who have produced better returns. But what separates Buffett from others is that he’s been doing it for more than 50 years. He didn’t rely on the strategy of dancing in and out of the market to create his wealth. No wonder, 90 percent of Buffett’s wealth was created after his 60th birthday.
Peter Lynch, the legendary and extremely successful fund manager, revealed a very surprising statistics about his fund. According to him more than half of the investors in his fund lost money. And these were the investor who were trying to time the entry and exit to Lynch’s fund. They would jump in just after a couple of good quarters and bail out after few bad quarters. Investors who benefited from Peter Lynch’s long term performance were those who stayed invested with the fund for long time.
Remember, what counts is the time in the market and not timing the market.
If you want to create wealth for long term, learn to treat investing as marathon. Don’t burn yourself out with short term market sprints.
You have to be ‘in the game’ to win it.