It is human intuition to think we can find patterns (shortcuts), outsmart or work harder to achieve our desired results. In many facets of life, this is true. Unfortunately, while this outlook is the norm when it comes to investing in equity (stock) markets, this way of thinking is likely to backfire.
When it comes to investing in equity markets, all of the available information (inflation, interest rates, war, fear of recession etc.) is being accounted for by the markets in real-time. This means the market is adjusting to new information at the same time investors are reacting. We can not get ahead of the information (without risking jail time – ie. insider trading) and would be better to just accept that the current value of the market as a whole or each underlying company, is trading at the fairest price given all the available information. Knowing this is believing publicly traded companies are part of an efficient market.
Not being able to “outguess” the market is okay and with history as our guide, outguessing the market is not necessary. Just betting on the market as a whole has always worked to date and assuming the world’s greatest companies continue to have the freedom to innovate, we should continue to bet that equity markets will continue to climb over time.
Coming back to trying to outguess the market, this not only means not trying to guess what stock to buy or sell, but also trying to time when to get in or out of the market. Again, human nature makes us think we (or at least the expert advisor/investor) should know what’s going to happen next, when we should get in and when we should get out. The reality is, no one knows and trying to guess can have a major impact on your retirement or investment outcomes.