Why timing the market is the wrong approach for investors

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“When we own portions of outstanding businesses with outstanding managements, our favourite holding period is forever,” #warrenbuffet quipped in a 1988 letter to shareholders. Warren Buffett is probably the world’s most famous investor. Over a career spanning multiple decades, he has amassed an astonishing $110 billion dollar-plus fortune, making him one of the richest men in the world. His success can largely be attributed to his patience, confidence in fundamentals, and a steely nerve, hallmarks of a passive #investment style.

Naturally, active investing, a higher-risk style in which investors seek out individual stocks they think (or hope) will outperform the broader market, trading frequently to take advantage of price movements, does have advantages of its own. Though active investors are exposed to larger – potentially ruinous – risks, their gains can rise far above those enjoyed by passive investors. Choosing the right investment at the right time can produce ‘market-beating’ returns, and there are a number of examples of savvy active investors making dramatic plays of this type. George Soros, another enormously successful investor, is famed for his highly speculative tactics.

However, ‘#timing the market’ as Soros did in 1992 is easier said than done; and for most investors, such gambles are unlikely to pay off. The riskier nature of active investing can lead to serious losses in periods of market crisis – episodes where large numbers of investors lose money, even if a fortunate few who made bets in the right direction reap a profit. Spikes of intense volatility have less of an impact on the passive investor – a rough month or even year does not mean calamity for the long-termist, provided they can hold their nerve. “Time in the market beats timing the market – almost always,” wrote investment analyst Kenneth Fisher in an article for USA Today in 2018, giving passive investors a useful catchphrase.

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CHAPTERS
00:00 Intro
00:51 Buying and holding
02:41 Timing the market
04:31 Fundamentals
06:19 Dos and don'ts

About Julius Baer

Julius Baer is the international reference in wealth management, based on a solid Swiss heritage.
The story of Julius Baer began over 135 years ago with the vision of one man. In the 1890s the company’s founder and namesake, Julius Bär, established himself as a young and promising banker on Zurich’s famous Bahnhofstrasse.
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Informative video with helpful analogies. Thank you!

aravindnarayanan