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Chris Hladczuk
Wed Oct 26 2022

The Downfall of Timing the Market

You know the best way to end up broke?

Timing the stock market.

What do I mean?

Here’s the breakdown and how it applies to changing interest rates for your startup…

What does “market timing” in finance mean?

Buy a stock at a low price and sell it at a higher price.

Buy low. Sell high.

Does this sound simple?

Yes.

But is this impossible to do in practice?

Yes.

Why?

Because daily stock price changes have nothing to do with business value:

  • A war could breakout in Ukraine
  • Fed economic policy could change
  • Regulation could change

A million factors affect short-term prices.

So trying to time the bottom or top of the market is a fool’s errand.

Peter Lynch averaged a 29% annual return over 13 years running Fidelity’s investment fund.

Here’s what he says about market timing:

“Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.” - Peter Lynch

How does this apply to interest rates?

Recently, there has been a bunch of press on changing interest rates.

Like this:

The biggest banks in the world have an army of economists and forecasters.

They have 1 goal:

Predicting interest rates.

But back in February 2022, JP Morgan told everyone rates would be 2.25% by March 2023.

Today, JP Morgan is telling us that it will hit 4.25-4.50%.

JP Morgan was incredibly wrong. And so were all the big banks.

So what?

Because just like buy low, sell high never works.

Guessing on interest rates is a fool’s errand too.

Okay, so what’s the solution?

Conventional wisdom in stocks:

Buy and hold a stock you love for a long time.

The same is true for rates.

If you see an attractive interest rate today, don’t hope for a better option tomorrow.

You can act now.

And go back to building your business.

I’ll leave you with a great quote from Warren Buffett:

“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”

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