New York, NY, July 19, 2024 (GLOBE NEWSWIRE) -- On July 17th, the major U.S. stock indices closed with mixed results. The Dow Jones Industrial Average rose by 0.59%, reaching a new all-time high, while the NASDAQ fell by 2.77%, marking its largest decline since December 2022. The S&P 500 dropped by 1.39%, its biggest single-day fall since April 30th. The Philadelphia Semiconductor Index plummeted by 6.81%, its steepest drop since March 2020. Major tech stocks experienced significant losses, with NVIDIA down over 6%, Meta down over 5%, Tesla down over 3%, and Amazon, Apple, Netflix, Microsoft, and Google all down by over 1%.
Amidst these market fluctuations, Lucas Turner, a distinguished financial expert, addressed the pressing issue of market timing at a recent event organized by the Ascendancy Investment Education Foundation. This gathering aimed to shed light on the complexities and risks associated with trying to predict market movements.
Trying to catch the perfect moment to enter or exit the stock market seems like a risky idea!
Famed speculator Jesse Livermore made $1 million (about $27 million today) during the 1907 market crash by shorting stocks and then made another $3 million by buying long shortly after. Studying Livermore’s legendary, yet tumultuous, life reveals a roller-coaster journey in the investment world. He repeatedly amassed vast fortunes and then went bankrupt, ultimately ending his life by suicide.
Livermore might have had a unique talent and keen insight to foresee market trends. Despite this, many investors believe they can time the market like Livermore or other famous investors/traders. They often rely on estimating the intrinsic value of companies or using Robert Shiller’s Cyclically Adjusted Price-to-Earnings (CAPE) ratio as a basis for market timing.
Looking at history, when stock prices rise faster than earnings – like in the 1920s, 1960s, and 1990s – they eventually adjust downward to reflect company performance. So, market timers should sell when CAPE is high and buy when CAPE is low, adhering to a buy-low, sell-high strategy that seems straightforward and easy to execute.
However, investing this way often yields disappointing results. Investors often sell too early, missing out on the most profitable final surge. When everyone else is panic selling, average investors rarely buy against the trend. Thus, timing the market is generally considered a losing strategy.
The stock market always follows a random walk, making historical performance a poor predictor of future trends.
Although in the 1980s, academia questioned this theory, suggesting that since the stock market exhibits a return to a mean, it must have some predictability. Stock prices deviate from intrinsic value due to investors’ overreaction to news or excessive optimism. Conversely, during economic downturns, prices swing the other way, creating opportunities for investors seeking reasonable risk pricing.
But here’s the catch: what is considered cheap or expensive is based on historical prices. Investors can never have all the information in advance, and signals indicating high or low CAPE points are not obvious at the time. Under these circumstances, market timing often leads to disappointing results.
Some may argue this strategy is too complicated for the average investor to execute and profit from. A simpler method is rebalancing. Investors should first decide how to allocate their investments, such as half in the U.S. market and half in non-U.S. markets. Then, regularly review and rebalance the allocation. This approach benefits from reducing holdings when investments rise significantly, mechanizing the process to avoid psychological errors, and aligns with the inevitable mean reversion over the long term.
About Ascendancy Investment Education Foundation
Ascendancy Investment Education Foundation, founded in September 2018 by Lucas Turner, is a private foundation dedicated to enhancing financial literacy and investment skills. Led by a team with extensive experience in finance, education, and technology, the Foundation offers a range of educational activities both online and offline. These include live courses, expert-led discussions, on-site lectures, and investor experience days, all aimed at promoting sound investment practices and fraud prevention. With a focus on innovation and quality service, Ascendancy aims to lead in investment education nationally and globally.
Company: Ascendancy Investment Education Foundation
Contact Person: Vicki Pieter
Email: contact@ascendancyfactor.com
Website: www.ascendancyfactor.com
City: New York
Disclaimer: The information provided in this press release is not a solicitation for investment, nor is it intended as investment advice, financial advice, or trading advice. It is strongly recommended you practice due diligence, including consultation with a professional financial advisor, before investing in or trading cryptocurrency and securities.
Vicki Pieter
Ascendancy Investment Education Foundation
contact at ascendancyfactor.com