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The Truth About Market Timing

StockMarketBoardThere is a well-known saying in investing that we should ‘buy-low, sell-high’. But often we see the opposite from investors around the world.

A recent headline in The Business Times said: “Investors flee gold funds for broad commodity ETFs”. The article went on to say that US$4.8b, which had been dedicated to precious metals, flowed out of funds in Jan and Feb this year.

And yet, it was only last October that an article claimed “Gold ETF Bullion Holdings at Record after $3b Monthly Inflow”.  It seems that $3b had flowed into Gold-related ETFs in the USA in September 2012, pushing these funds to hold record amounts of bullion.

But look what happens when I overlay the fund inflow and outflow information onto a gold-price graph from goldprices.org.

goldchart

 

The chart shows how gold investors piled into the investment-du-jour, otherwise known as the ‘let us buy what’s hot at the moment’ phenomenon. When gold was climbing, investors were clamouring on board. But when gold prices were on the way down, investors couldn’t get out fast enough.

If gold was attractive, wouldn’t it draw in more buyers when prices are down? To paraphrase Warren Buffett, it’s only in the financial markets where we see such twisted behaviour of liking quality merchandise more only at a higher price.

But it doesn’t only happen with gold. It is not unusual to see investors buy and sell at exactly the wrong times. Unfortunately, though, trying to time the markets is one of the hardest things to do.

Consider an investor who bought the SPDR Straits Times Index ETF (SGX: ES3) in March 2003. This Exchange Traded Fund tracks the movement of the Straits Times Index (SGX: ^STI).

If he had conveniently forgotten about the tracker for 10 years, the investment would have delivered a 250% return. That’s right, despite the Financial Crisis of 2007 and the Eurozone debt debacle, buying and holding has delivered a respectable return. The lesson for all of us is summed up by a piece of sage advice from mutual fund legend Peter Lynch, who said: “It’s not timing the market, but the amount of time you are in the market, that counts.

Motley Fool’s purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead. 

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Contributor Chong Ser Jing doesn’t own shares in any companies mentioned.