I was at the supermarket a couple of weeks ago, waiting in line to have my groceries scanned and bagged, when I noticed a guy at the next checkout over anxiously looking around. Now, he could have been doing this for any number of reasons but what it looked like – and the conclusion I immediately jumped to – was that he was looking to see if he’d get through faster if he swapped to a different checkout.
THEN, because I am a personal finance geek and my twisted mind works in these ways, I immediately made the connection between changing checkout lanes and trying to time financial markets. It doesn’t matter whether you invest in the stock market, the real estate market, commodities or any other investment available. There will be times when it’s tempting to make that “educated gamble”, think that you know better than everyone else, take your money from where it is right now and dump it into a market you think is a bargain right now.
There are multiple reasons why changing checkout lanes might not work out for you. Maybe the person ahead of you in the lane you switch to has more items underneath that 24-pack of toilet rolls than you thought. Maybe the checkout assistant on duty is under-18 (we’re in NZ here) and you didn’t see the alcohol in the customer’s trolley (that’s what we call shopping carts). Now you need to wait for a supervisor to come and ID them. Maybe the staff member is in training. Maybe the line you were in before ends up moving faster than you thought. Someone might have had to ditch because they forgot their wallet or one of the items on their shopping list.
Just occasionally, you’ll make the right call and save all of 30 seconds by switching checkout lanes. But it’s far from a guarantee, and the gains aren’t really significant enough for it to be worth bothering with. Which is an incredible parallel to some people’s obsession with overtaking other drivers, but let’s not go there.
I’ve spent most of this time talking about supermarkets, but I think you get my drift about how this applies to the kind of markets we’re really interested in here. Trying to time markets is a gamble as much as it is anything else. Occasionally you’ll find you made the right call, sold your house at the top of the market and bought shares at the bottom of a bear market. Afterwards you may find reasons to give yourself more credit than you really deserve. You’re in good company here. Governments all over the world sway voters by saying “look at all the jobs/GDP we’ve created” when the reality is that the economy will tend to cycle through ups and downs no matter who has the keys to the kingdom.
History tells us that stock and real estate markets inexorably go up over the long term, despite their volatility. Theoretically that maxim could change in the future, but if it does we’ll probably have larger concerns (e.g. global meltdown) than the state of our retirement accounts anyway. This is why financial independence bloggers will always recommend you buy and hold. If you try to trade to get deals, you may win some, you may lose some. But the name of the game here is to get rich slowly. You’ll still get there much faster than everyone else! It may be the boring way to wealth, but it’s also the way to inevitable wealth.
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