Timing the stock market

Somehow, it’s already November. The cold weather is back and it won’t be long now till the ski resort opens.

In view of the major market fluctuations in the past quarter, several investors have asked me if it isn’t better to anticipate market movement when planning an investment. There’s some apprehension because of the fear of investing new capital at the worst possible moment.

I consulted a study before writing this column. In it, the authors compared three types of investment over a period of 52 years between 1966 and 2018, namely:

  • Investment taking into account perfect foresight;
  • Investment of new capital during markets peaks;
  • Use of an approach featuring systematic engagement at the start of the year.

The data prove that over the long term, there’s a slim difference between the results of the three strategies: 17.6 % over 52 years, which is 0.3% per year. The leverage effect on the compounded returns over a long period makes all the difference. Currently, investing new money could appear to be a poor short-term decision. Over the long term, however, it’s the duration of the operation that takes on the most importance.

To invest during a period of correction, you have to be able to anticipate a drop, know how to recognize the signs of a retrenchment and lastly, have the discipline to invest at the right moment. In my experience, it’s a huge challenge. We can, though, adjust our target without exiting and timing the markets.

Don’t hesitate to contact me if you want the details of the study; I’d be pleased to send it to you. In the meantime, see you at the top when the ski season opens.

 

Francis Couillard38 Posts

Francis Couillard est Vice-président, gestionnaire de portefeuille et conseiller en patrimoine. Vice-President, Portfolio Manager & Wealth Advisor. franciscouillard.com

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