How to Survive in the Stock Market: Market Timing Made “Easy”

Market timing the stock markets. Let’s be frank.  It’s the glorious pot of gold at the end of the rainbow.  It’s the the unicorn of tactical stock investing. It’s the Honus Wagner T-206 or Mickey Mantle Topps 1952 rookie card of baseball card collecting, or the Ferrari 250 GTO of car collecting. For our female followers, it’s the Black Crocodile Hermes Birkin bag. In other words, in the world of investment management it is often looked for as a the “Holy Grail” of investing, but few investors, particularly those in the retail investing world have the skillset or emotional fortitude to achieve it successfully.  I mean successfully more than once.  Because if it’s successfully done once, while profitable, I would argue that most likely it was luck over investing skill.

The quote “time in the market beats timing the market” is largely attributed to Ken Fisher, the Founder of Fisher Investments, the largest independent RIA in the USA with assets under management nearing $300 billion with a B.  But many other prominent investors and money management firm executives before him messaged similar opinions.  Peter Lynch of Fidelity fame, around 1995 said, “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves”.

Jack Bogle, founder of Vanguard, never one to mince words on his opinion said, “The idea that a bell rings to signal when to get into or out of the stock market is simply not credible”. Mr. Bogle followed that one up with, this goodie “The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible.”  And of course, Warren Buffet, has been vocal on this subject many times going so far as to say, “The only value of stock forecasters is to make fortune-tellers look good”.  I guess he didn’t want to disparage economists or weather people.

Overall, I have to agree with them.  Why? Just look at our video from last week entitled, “The Most Hated Bull Market ever?” or the week before “The Great Reset and what it means for your money” and total up the returns you would have missed out on had you been scared out of stocks during some event over the last decade to 15 years.

I’ve been CIO at OHFG for going on 7 years, and I want to look in the rear-view mirror and see the events that have transpired just in that time period and the returns an investor in the overall S&P500 would have missed out on had they been shaken out during the major events that happened.  This isn’t to say that one cannot optimize additional investments into the market, but emotionally investing which usually means getting FOMO when stocks are rising parabolically or emotionally selling when stocks are down, and volatility is high is not the best additive investment program.

Here’s a chart of the cash S&P500 for the last 7 years with as many meaningful events as I could recall and their timing circled.

Looking back in time, many investors claim they long for more years like 2017.  Back then, post Donald Trump being elected in late 2016, the S&P 500 didn’t fall more than 1% after August 2017, and hadn’t dropped more than -4% since the Presidential election as investors bid up stocks in advance of the passage of the Trump Tax plan which wasn’t signed until late December 2017.  Had you waited until it was passed you missed most of the move up, because come late January 2018 the market peaked on the back of talk of a looming China trade and tariff war setting off what has since come to be known as “volmagedon” during February 2018 with the S&P 500 dropping almost -12% in less than a month.  Post Feb 2018, the markets recovered the better part of all their losses over the next 8 months into the 4q2018 but then fell again as Jerome Powell made comments about continuing to raise interest rates causing an almost -20% down move into XMAS eve.  Our team’s first Audio stock talk was actually recorded and released at this time to try to calm our clients nerves and detail what we were thinking about the market direction from then on.

By new years eve 2019, Jerome Powell had reversed course and discussed more dovish policies, and the markets were able to exhale and continue marching higher on stable growth and earnings into late 1q2020 when the truly unpredictable hit, the Covid pandemic.  The global economies were shuttered and the S&P500 dropped its almost spot on recessionary down move of -35% in less than a month, before global central banks and fiscal spending came to the rescue to jump start and reinvigorate the economy.

From April 2020 into late 2021 the S&P500 gained a near historic 120% making new ATH’s near 4825 before growth peaked and inflationary pressures grew excessive causing the Fed to begin to message a interest rate hiking cycle was to begin shortly.  In late February, Flashback and remember the media news stories during this time?  A heated 2020 Presidential election won by President Biden.  Conservative media networks opined that the stock markets and economy would crash?  Neither did.

Russia invaded Ukraine and there was talk of $200/bbl oil.  Remember those calls?  Where does oil sit now 2.5 years later? Around $80/bbl, down from its short-term spike to about $120 initially.

The most interesting thing to me is the precinct forecasting ability of the overall market, because by the time the Fed started hiking interest rates in mid-2022, the S&P 500 had already dropped about -25% into early June.  The exact same month that inflation reading peaked at over 9%. The rate hiking cycle began, but if you waited this long to sell, there was only another -2.5% downside into October 2022, totally over -27.5% from the early 2022 peak.  The Federal reserve was out raising rates materially and fast in late 2022 and 1h23 and what happened to stocks?  They rallied almost 32% into summer of 2023.

The markets sold off into October 2023 as the economy slowed and many media outlets were discussing looming stock market crashes, recessions, and replays of October 1987!  None of which occurred.  The Isreal-Hamas war started in October 2023 and did the stock market tank?  Nope it had already moved down on economic slowing.  What happened? Interest rates peaked, earnings started to reaccelerate and stocks? Well stocks have now returned near 40% since that low.  This period includes a Presidential candidate dropping out and being replaced, another being shot at, and the horrific war going on between Isreal and Hamas escalating in the Middle east and the ongoing war in Ukraine.

As I said last week, almost every year that the S&P500 has gained the last 14 years, I recall hearing from many in the financial media that “this is the most hated bull market ever”.   And every year until now, I’ve disagreed with these calls.  Until now. Why now? Well, those who have grown to know our team over the last 6 years of growth at Oak Harvest, should have come to know we like to stick to the data if we can. Folks the data says. Yes, this is one of the most hated bull markets in the last 40+ years.

Investors, market timing is hard and generally not a good idea for most investors.  Why? Because you must be right two times.  Getting out and getting back in.  And more specifically you must be right on both price and time multiple times.  I have developed some tools that help in identifying risky time periods that one should go slow or speed up investment programs, but nothing is perfect. No system is perfect.  And no, AI will not be the answer to this question even with the billions of dollars being spent there.  Even with a system, the hardest thing to do is be patient waiting for the stars to align to act or react and use the system because most of the time?  The economy wants to grow and stocks or at least the overall broad indexes want to appreciate.

Historically our economy has grown over years and decades.  Historically, the odds are higher that stocks appreciate over 3, 5, 7, and 10 years and the longer one holds them the higher the batting average for a positive outcome. Over time periods measured in multiple years, stocks, or ownership in equities have proven a better inflation hedge than most other asset classes, as they can appreciate with their revenue and earnings growth which are functions of unit growth and pricing growth minus costs over time.

Here’s a great graphic from Capital Group showing the longer the holding period measured in years, not days, weeks or months, for the overall S&P500, the higher the likelihood of a positive experience and return.  This is the 96 years ending the end of 2023.

The economy shrunk in the 1h2022 on a real GDP basis and earnings growth on the S&P500 went from +15% to start the year to almost -10% YTY to end 2022 and what happened to the overall S&P500 during this period? Yeap, you guessed it it declined hard. But overall, we are still in a secular bull market, warts and all. Wars and all. Presidential elections and candidates and all. Mistakes by politicians.  Covid lockdowns.  China slowdowns. Quantitative tightening. Bank runs in California. Office Real estate crashes and all, a secular bull market.

Here’s a 10-year chart of the S&P 500 during the ongoing secular bull market.  Up and to the right in a channel. I stripped out the overshoot in late 2021 and the undershoot during the Covid crash, but this is the secular trend so far.

Many investors who panicked out back then have now gotten back in because shorter term interest rates have risen, and they feel “fine” with a lot of their money earning about 5% relatively risk free. However, after we had the earnings recession in the first half of 2022, earnings and the economy got back on their upward trajectory and stocks have appreciated higher.  That’s why, the fast majority of time, I have to agree with many of the legends, “Time in the market, trumps market timing”.

If you are uncomfortable with wider range of possible equity outcomes, the Oak Harvest team has launched a new strategy that retains the ability to go long stocks, short stocks, as well as buy partial hedges and shock absorber “insurance” for a stock portfolio.  You can Google “OHFGX Oak Harvest” or find information on this new strategy of ours can be found at OakHarvestFunds.com.

https://www.rbcwealthmanagement.com/en-us/insights/the-push-and-the-pull-of-us-earnings

 

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