Does Time in the Market Beat Timing the Market?

Timing the market means that you buy stocks when they’re at an all-time high and sell again and an all-time low. It’s a topic that I’ve written about a few times on the blog so those who follow the blog often likely already know my stance on timing the market: it is not possible to perfectly time the market. 

I’ve seen on social media that some accounts focused on stock market trading explain how time in the market beats timing the market and I want to share my view on this. There is definitely some truth to it – that time in the market is important. When Warren Buffett bought his first stocks in 1942 the Dow Jones index was at $112. The Dow Jones Industrial Average, also called the Dow, includes the prices of 30 of the most actively traded stocks on the New York Stock Exchange and the Nasdaq.

Today the Dow is at $31.794,16. In 1942 you couldn’t buy an index like you can today through the so-called ETFs, but staying put would’ve given an amazing return. However, a return isn’t always something that you can 100% rely on.

In Japan the leading and most respected Nikkei index rose from 176 Japanese yen (JPY) in 1949 and is currently at JPY 26.789. had you invested in 1949 you would've made money despite the 1989 high of JPY 38.512. And this is where my hesitation about time in the market comes in. Had you invested in Japan 33 years ago you still to this day wouldn’t have had a positive return on your investment. In the UK the popular FTSE index didn’t recover from the 1999 high for 16 years. How long is one capable of being patient?

Nikkei 1949-2022. Still far from the 1989 peak.

If time in the market is your investing strategy just be aware that if the country or region that you’re investing in is facing a recession or a bubble is bursting it can take decades to come back to where you started. A lot of people these days are investing in ETFs tracking index funds, and it’s a risky investment because you rely on how stocks are performing on a macro-level. If you invest in the S&P 500 you put a bet in on the American economic growth will continue and you need to be aware of the risk of decades of no return. If you have the patience - the stomach - to wait then time in the market has proven to be and effective strategy. 

When we look at individual businesses rather than the overall stock market we have a better opportunity to find a quality business, to learn about that company and to time our investment and buy when the price of that business sells in the stock market for a discount (Read more about how to value a business here). It’s back to why I believe that value investing is a low-risk strategy.