How I found out about the worst market timer ever.

Written by George Adkinson.

When I first started investing, I was worried about how much impact one decision could have on my financial future. I realised early on that one of the biggest mistakes I could make was selling my investments out of fear. Sure, it’s a common reaction, but with dollar-cost-averaging and history showing me that markets work, we can see that by investing at high peaks of the market, investors can still see gains in the long run.

One vital person who made me realise this lesson was none other than Ben Carlson. He stated several times in his article that even the least experienced investor can and can see gains from the stock market. His insights just emphasised the importance of staying on track and sticking to the course, even when the market gets rocky. I realised my financial growth was determined by my ability to stay in line with my financial goals.

Meet Chris, a 22-year-old tenacious investor to retire at age 65.

Chris was an awful investor who has perfected timing the market at every peak but regardless, the worst market timer there is as well. Chris’ only problem was he was afraid of to dollar-cost average throughout the years. He was only ready to invest once there was a bull market (an upturn in markets). By early 1973, Chris was ready to invest $6,000 into a hypothetical S&P500 (there were no index funds in 1972) just before it fell by 48%. Chris did have one power by his side, he never sold any of his shares. Because he was so afraid of making a mistake on both of his sales decisions, he hung on for dear life.

Over the next 15 years, he accumulated a total of $46,000. He didn’t dare to make additional savings commitments until September 1987, unfortunately just before a 34% crash. Bob kept his money invested as he had in the past because timing wasn’t on his side.

Chris held onto his money and made just two more investments before retiring—one exactly before the 1999 dot com bubble, investing $68,000 and $64,000 right before the 2007 disaster! After these incredible 42 years of market disaster, how did our friend Chris do?

He did make money. Chris profited $1.16 million from the $184,000 he invested over the years as the market continued to reach all-time highs.

Additionally, he would have had a lot more money in the end (more than $2.3 million) if he had just dollar cost averaged into the market year using his savings.

Bob was a careful saver who prepared his savings ahead of time. He steadily raised his savings over time and never faltered in his objectives. He planned to save $2,000 per year and per decade, increasing that by $2,000.

Over his more than 40 years of investing, he never sold out of the market, allowing his investments to compound over the decades. He allowed himself a lengthy runway.

I like to assume Bob didn’t pay much attention to his portfolio statements over the years, but he did have to deal with a significant psychological toll from witnessing significant losses and maintaining his long-term outlook. He simply kept his head down and kept saving.

He had a single, low-cost index fund as part of a very straightforward and inexpensive investment strategy. This is because costs matter. Costs can eat into your investment returns.

The stock market has shown to be a very wise investment if one has a few decades to invest, so long as one does not try to be “smart” by selling when they think the market would decline.

This illustration consists of 100% stocks in a single market, in the S&P 500. Diversification is your friend and different markets and investing in the bond market can create a sound investment approach for your goals. Research shows having a balanced portfolio, risk-adjusted to your risk appetite can achieve your goals. How advisors at Private Capital can help you through this process, contact us if you would like to learn more.

Even if he turns out to be the second-worst market timer ever, the next “Chris,” who is just starting to save and is now thinking about buying stocks, would do well to follow his predecessor’s approach as long as stocks continue to climb over the very long term.

Takeaways from this:

1. Markets work 
2. Costs matter 
3. Diversification is your friend