How I finally learned “You can’t time the market”

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by devilmaskrascal

I cashed out about 40% of my positions a month ago. I bought a bunch of stocks I liked long-term near bottom and my portfolio had made it back to pre-COVID breakeven, but I got spooked by economist warnings of an actual depression, the billionaire investors sitting on the largest cash position in history, the tech stocks hitting ATHs in the middle of a dead underlying economy, bankruptcies starting and epidemiologists warning of major disaster if we reopen too soon. Earning season would be a bloodbath and unemployment hitting record levels since the Great Depression. There’s never been a pure v-shaped recovery, so why would this be the first one?

“You can’t time the market (as in sell at the peak and buy at the bottom), but you can be rationally optimistic or pessimistic about the overall direction and act accordingly” I thought. “I’m going to take profits from this irrational FOMO bubble and keep some money on the sidelines so I can snatch up long-term stocks for well below current valuations when this whole thing inevitably collapses.” Moreover, I didn’t want to see my portfolio back down 30% again if could avoid it.

Welp, most the stocks I sold are up ~20% since then. I still hold positions in all of them, but missed out on thousands and thousands of gains.

The reason you “can’t time the market” is that market is not rational. The market goes up on bad news and down on good news. Stock valuations have nothing to do with actual values, the underlying economy, etc – only whether investors perceive future growth. People want to get into positions in good companies as quickly as possible, and thus it becomes a FOMO race all the way back up or above where you started, like an eBay auction where competition drives a price above where you might have sold had you simply offered a flat price.

Rational economic pessimism has been a disaster ever since the economic reforms in 2009. The Fed is always going to work against any bets against the economy (well, unless you are investing in Berkshire or banks during a crisis, apparently…The Fed is lending money at no interest and bailing out failing companies, leaving no room for such opportunists to profit.) Thus they’ve detached Wall Street from the underlying economy almost completely.

And you know the second you spend every penny going long on everything, the whole house of cards will finally collapse and you’ll be holding underwater stocks at extremely high valuations or with extreme risk of a prolonged shutdown. Because that’s what you deserve for being so irrational.


Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.


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