Market Timing

A Hot Time on Wall Street

“Sell in May and go away” is the Wall Street market timing strategy that suggests investors are better off in cash during the hotter months of the year. The idea is that traders, money managers, and bankers all leave the city to escape the heat of the summer. It has been hot this summer but US stocks haven’t taken any time off as the Dow Jones Industrial Average closed above 27,000 and the S&P 500 briefly broke through the 3000 point level for the first time ever this week.

While the benefits of trying to time the market with a calendar are dubious, it has been my observation that summer isn’t the season that folks are most inclined to discuss their investments and financial plans. I have fewer appointments, my phone doesn’t ring as often, and emails aren’t returned as quickly this time of year. While it’s common for people to ask me about my opinions on the stock market at holiday parties, almost no one asks at the ballpark or the lake. Normally those conversations are about travel plans, rain, or how the BBQ was cooked. Recently, however, I’ve found my poolside discussions increasingly are about whether now is a good time to buy stocks or if recent highs mean a downturn is right around the corner.

When the market gets hot, it doesn’t matter what the season is. The appeal of getting in at the right time or avoiding the next downturn can tempt even the most disciplined, long-term investors. The reality of successfully timing markets, however, isn’t as straightforward as it sounds.

Is "Buy Low, Sell High" Market Timing?

“What’s the difference between ‘buy low, sell high’ and ‘timing the market’?”

That was a question posed by a friend recently. He said that he had been advised to “take some wins off the table and invest in under-appreciated assets”. He went on to say, “which sounds like trying to time the market.”

He may be getting good advice, but he is right to be skeptical. 

Another Groundhog Day, Another Market High?

Last year was an amazing time to be invested in stocks. The S&P 500 Index recorded 62 new closing highs in a year that only had one down month (April). 2018 has felt a little like Groundhog Day, well not THE Groundhog Day (today), but more like the 1993 Bill Murray movie. In the film, Murray's character awoke each morning to relive the same day. So far, the S&P 500 has recreated setting a new record high 15 times before peaking last Friday. 

With market records seemingly being set every day, I’m increasingly asked if the winning streak means negative returns for stocks are on the horizon? Maybe so, but if you had gone to cash every time the market hit a new high last year, you would have left a lot of meat on the bone.

When addressing this question, it can be helpful to keep the following in mind: