The barrage of news lately can make investors feel like they must do something.
The feelings are strong. And bearish.
Since 1987, bearish sentiment (read: negative outlook toward the market) has never been this bad for so long.¹
This can cause investors to want to act.
We think we can outsmart the market or time it just right.
Smart people have failed as investors before.
Warren Buffett describes one of history's most brilliant individuals falling into this trap and making a massive investment mistake:
Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.²
Heightened activity in an investment portfolio can be a fool's errand.
Another example of how trying to time investments can fail even among experts is looking at how investment managers perform against the S&P 500 index.
Did you know that over the short and long term the majority of professionally managed funds underperform the stock market index?³
While about one-third of investment managers outperformed over the short term, nearly 90% underperformed over the long term.
If professionals have challenges timing stocks, why do you think your timing will work?
There is a positive takeaway, though, when it comes to market timing.
Let's say your timing was atrocious. So much so that you invested at the market peak right before each and every crisis since the 1950s. How would you have done?
Pretty good actually.
Of course, this assumes a hard reality.
It assumes that right after you invested when the crisis covered newspapers and news media that you did not try to fix it by getting out and selling. It assumes that you stayed invested and averaged a 7% return.
Patience can outperform proactivity.
Sometimes doing something in the short-term can create bigger problems over the long-term.
Don't get me wrong. There can be reasons to do something.
It's just that your investment decisions need to be governed by something else other than the phantom of perfect market timing.
------
Sources:
1. Bespoke Research via X posted on April 17, 2025. Accessed online: https://x.com/bespokeinvest/status/1912823648349573127
2. Berkshire Hathaway Letter (Feb 28, 2006), p. 19. Accessed online: https://berkshirehathaway.com/letters/2005ltr.pdf
3. SPIVA data. Accessed online: https://www.spglobal.com/spdji/en/research-insights/spiva/