Time in the Market Is More Important Than Timing the Market

I am wired with decidedly contrarian instincts.

As an investor, I can work that to my advantage…

Every decade, we get a couple of major market panics that serve up incredible buying opportunities.

Panics are times when contrarians like me shine. My favorite thing to do is scour the market for bargains as the investment herd races for the exit.

The outbreak of COVID-19 created the last such episode.

During that incredibly sharp sell-off, I identified American banks, the energy sector, homebuilders and small cap stocks as having potential for outsized returns.

All of those sectors have outperformed the S&P 500 since the market bottom in the spring of 2020 – no easy feat, considering that the S&P 500 has roared higher as well.

Our 2020 Contrarian Plays Have Outperformed

Indeed, during times of stock market chaos, I do well as a contrarian.

But the reality is that, more often than not, the stock market is clear of chaos and is smoothly moving higher.

And during those periods, contrarian thinking – specifically at the macro level – can be a disadvantage. Personally, during market tranquility, I find it extremely hard to pull the trigger on putting new money to work.

I’d much rather wait for a sell-off to produce better opportunities.

But that just isn’t an intelligent approach for someone like me who has a long-term time horizon.

I can’t just sit on the sidelines – waiting for an opportunity that might not arrive for years – instead of making money.

And contrarian investing is more than just investing in the broader market when the majority is selling and selling. It can also mean targeting specific unloved companies with great fundamentals – and despite an overvalued market, there are still great opportunities out there for investors.

Besides, history tells us that the stock market is on a long, steady march higher.

It pays well to always be in the market…

For Long-Term Investors, the Best Time to Buy Is Now

Sitting and waiting for an ideal moment to invest means you risk missing out on years of stock market wealth generation.

This game is clearly rigged in favor of the long-term investor.

Here are three data points that prove the biggest risk for the long term is nonparticipation…

First off, since 1950, the range of returns from the S&P 500 for any one-year period has been from up 47% to down 39%.

In other words, the market is volatile over a one-year time horizon.

Second, for any five-year period since 1950, the range of annualized returns for the S&P 500 is up 28% to down 3%.

That means there is little chance of being down, even over the worst possible five-year stretch.

Finally, dating back to 1950, there has not been a single instance in which the market has been down over a 20-year period. Not even close.

In fact, the range of annualized returns for every 20-year time frame since 1950 is up 17% to up 6%.

That means since 1950, there has never been a 20-year period when investors did not make at least 6% per year in the stock market.

What more can you want than making 6% per year your worst-case scenario?!

The bottom line for anyone who wants to generate wealth over the long term is this…

Time in the market is more important than timing the market.

That doesn’t mean an investor should blindly buy stocks.

Instead, it means that investors should selectively add exposure to the market.

I do it by finding the best value and avoiding dangerously expensive sectors of the market.

The areas to avoid include profitless electric vehicle manufacturersovervalued videoconferencing companiesoutrageously overpriced meme stocks and joke cryptocurrencies.

But I also believe there are some great opportunities to be had. And to feed my inner contrarian, I look for unloved, undervalued stocks with solid fundamentals and a history of rewarding shareholders.

I’ve recently identified multistate operators of cannabiscommodity producers and utilities as promising pitches.

There are always opportunities and risks in every market environment. The more we focus on the former and avoid the latter, the better we will do.

The key is to stay invested for the long term.

This article was originally published on this site