On timing the market
Donald Trump will be the next president of the U.S. Some people are happy, some people are not. The popular vote was a virtual dead heat, with Clinton leading by about 135,000 votes, but Trump handily won the vote that matters, the electoral college. What does this mean for your investments? You should probably just stay the course. It hard… really hard to try to time the markets. As soon as it became evident that Trump was going to win the election, the futures market began to decline. The three main stock indices in the U.S. — the S&P 500, the Dow Industrial Average, and the NASDAQ — were down almost 5%.
The next morning as the markets started trading, stocks opened flat, but collectively ended up a healthy 1% for the day. Some stocks were up 5%, 10% or more. Others were down considerably. Could anyone have predicted such volatile swings? Few, if any. It was a good illustration of how difficult it is to try to time the market. In the short term, it’s foolish to try to time the market. In the long run, investments in the U.S. stock market has been fine.
Back in April, Warren Buffett addressed the shareholders at the annual Berkshire Hathaway shareholders meeting. He discussed the upcoming election. He suggested that it didn’t matter who won the election: Trump or Clinton. Regardless of the outcome, the economy and the stock market would be fine:
Buffett, a staunch supporter of Democrat Hillary Clinton for president, was asked about the regulatory impact on Berkshire if Republican front-runner Donald Trump wins the 2016 U.S. presidential election.
“That won’t be the main problem,” he said to audience laughter.
“If either Donald Trump or Hillary Clinton becomes president, and one of them is very likely to be, I think Berkshire will continue to do fine.”
I continue to suggest that most people are better off avoiding investing in individual stocks and even avoid investing in particular investors. Most people are better off simply invest in broad-based index market funds like the S&P 500 index fund.
At his annual shareholders meeting last May, Warren Buffett hammered this point home. Most everyone is better off putting the bulk of their money in index funds. He strongly suggested that actively trading investors will likely under perform the market and that investing in hedge funds usually performed worse than investing passively.
The morning, as I write this, many individual stocks are up by more than 3% and an equal number are down as much. If you watch the stock market closely and see such wild swings in pricing, you may act irrationally, buying or selling at the worst possible time. I strongly suggest that most people are better off not closely monitoring the stock market. Don’t try to time the market. Invest your money for your future. Continue adding to your investments regularly. Let time and compounding work for you. After years, and decades, you will likely amass a tidy nest egg.