Buying high and selling low still doesn’t make sense

From Carl Richards Jan 6, 2014 article in the New Your Times

Buying high and selling low still doesn’t make sense

Given the huge year the stock market had, there is a temptation to think that now is the time to shift more of our portfolios into stocks. It’s easy to understand why we feel this way. After all, the stock market is doing well, we are hearing about it in the news, and we don’t want to miss out. But remember, since it is now January 2014 you have already missed the opportunity to buy in January 2013. Now the market is higher, and we have already established that we do not know what the market is going to do next. We only know what it has already done. Resist the temptation to buy high, and instead focus on maintaining a well-designed portfolio that reflects the risk needed to meet your goals.

Simple, but excellent advice.

Bubbles build when investors, who became over-disappointed about money that they failed to earn during recent stock market rallies, jump in. Sure they expect to participate in future rallies, but these people (on average) tend to enter at exactly the worst possible time.

Bottoms form when these same investors suddenly decide that a bear market decline has cost them too much money. They finally decide to exit, fully expecting the markets to continue lower.

Unless you are a skilled market timer with a proven track record, my advice is do exactly as Carl suggests: “Focus on maintaining a well-designed portfolio that reflects the risk needed to meet your goals.

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