Buy Low, Sell High is not a prescription for Market Timing

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Buy low, Sell high is one of the most powerful maxims in finance. It is simple and powerful and very, very right. It’s also hard. It’s hard because it violates human nature. We don’t like buying low, we like buying high (when everyone else is doing it). We like selling low — because we are panicky and want to end the pain.

Market timers are sophisticated investors who can time the tops and bottoms of stock market cycles. When they’re right, they make a fortune. When wrong they get absolutely slaughtered. While their specialty seems simple enough, spotting market bottoms is a notoriously difficult challenge. Hell — we’ve seen 3 or 4 days in the last week were it looked like the DJIA had found a bottom — and then plunged futher. When the Shanghai exchange went from 6,000 to 4,000 it looked like a bottom – until it suffered another 50% haircut.

With markets this unsettled and volatile, it’s still dangerous to go all-in and jump back into the markets with both feet. We don’t know that the international economy is recovering (it doesn’t look like it is) and we don’t know that major stock indices have hit bottom (no sign of that yet). Furthermore – we don’t know what will lead the markets back to new highs in a recovery. Will the US tech sector come roaring back? Will it be retailers in China? Indian software? Black Sea boat-builders?

If you are feeling confident and want to ‘bend it like Buffet’, then there are some great ways to participate in global markets. And you may be 100% right — this may be a great time to be invested. But just remember — this is a risky environment, and you should factor that in to your decision. Professional market timers are still sitting this one out. If you want to outsmart them, do it with amounts of money that you can afford to lose. Until major markets have established a solid floor, then equities are still not a suitable place for the bulk of your household assets. Wait this out a little while longer until we have a better idea of where markets will fall to — and what will rise from the ashes.