Who are the Market Timers and who does the Buy and Hold?

In the world of buy and hold the only one doing it is probably you. Everyone else is timing the market and maybe using your money to do it.

Brokers put out regular newsletters to buy, hold, accumulate and occasionally sell stocks. Isn’t that market timing?

Mutual Fund managers feverishly trade stocks in their funds to get higher returns as their commission is based on how big the funds under management are. Aren’t they timing the market?

Sector rotation is spoken of often in the press and is seen as a responsible thing to do. Isn’t that market timing?

Right now some of the world’s largest pension funds are busy speculating with your retirement funds in Oil and possible other commodities to try and get returns regardless of the risk. They will need to learn to time the market quickly to get your money out before the bubble bursts. The danger is they are not commodity traders and should not be trading with your nest egg.

The Federal Reserves around the world meet once a month over lunch to decide if it is time to tweak the interest rate up or down without overheating or killing the stock market – er I mean the economy. The financial markets talk of nothing else a few days before the FED announces its decision and often tells us the rate change has been factored in. Doesn’t that mean they timed the market?

Even some of the Index Funds do some sort of trading to try to beat the indexes.

Commodities are bought and sold into the future with each side of the trade hoping they timed it right to profit from the other fellows bad timing.

If the truth be told isn’t buy and hold a cowards way of timing the market? Isn’t it saying you are so scared you might miss a bull market you are prepared to risk your nest egg being in the market all the time. That includes the two thirds of the time it is going sideways or going down just so you don’t miss the one third it goes up?

Isn’t it stupid in the face of overwhelming evidence that the market is going down that you should just sit and watch your money disappear?

And after you have lost a heap of money don’t you ask yourself, “Why didn’t I do something?”

You should also ask your financial planner where their money is invested right now. That will be worth knowing.

But what do all these marketing experts tell you to do – Buy and Hold. You have to ask yourself why.

The simple answer is that much of this financial industry would not exist if they did not have your money locked away to play with. Just think if we all were rational and realized the market was going down so we should get out, what would happen? Maybe a 1987 style crash would be on the cards.

Sometimes a quick massive drop in the stock market is much better than this long drawn out – we must protect the financial markets at all cost – die a thousand deaths market we are in now.

Right now banks, large investors and anyone with shaky investments is trying to time the market to get their money out with minimum losses. They are practicing Rule #1 – Avoid large losses but after the fact and are hoping for a bounce to trade out of their positions.

Many missed their chance during the recent bounce where the market retraced a significant potion of the January losses. Most likely they thought it was just a retracement and they should buy the dip because that is all they know.

I can’t help but feel the wealth management industry will try to pump and dump the market again before September to improve their performance figures and get those bonuses. They have a massive amount in cash with which to do this from what I have been reading in the press.

Way back before governments forced Baby Boomers to save for their own retirement by garnisheeing a percentage of their wages or by allowing a company to drop their pension schemes there was no financial industry as such.

It has grown up to be the Goliath it is today over the last 25 years. I read the other day that one of the biggest wealth management arms of one of the big four Australian Banks made more profit from its wealth management division than it did from its core banking business. Does that seem reasonable to you as a Baby Boomer with your money invested with them?

It makes me wonder sometimes when I see we have been in a bull market since 1982 whether we actually created it. Just think about that. Every month millions of dollars flow into financial accounts controlled by the wealth management industry. Much of it goes into Mutual Funds and it is these funds that for the most part have to be fully invested in the stock market.

If too much money is chasing too few good stocks then their price is going to rise isn’t it? Funds can buy and sell millions of dollars worth of these stocks every day and make small profits of a few cents per share. But it all adds up. You sell me your stocks and then I’ll sell them back to you – is this a possible scenario until it stops working?

When the market retraces your money is still pouring in and it sets off a feeding frenzy in the wealth management industry as it tries to buy up “cheap” stocks. It’s got to find a home for all that money. The market participants have learned over the last 25 years to buy the dips and now believe the market will always come back quickly because it always has. It’s a natural law.

They are rather like Pavlov’s dog as they salivate waiting for the market to drop so they can buy more stocks and drive the prices up higher.

Only this time the market didn’t oblige them. The law of buying the dips and the market will come back suddenly didn’t apply any more. There are probably very few fund managers that have ever experienced this. They have been trained to buy the dips. Many of these managers are your sons and daughters and have never experienced a bear market. They have no knowledge of how to trade it either.

There could be more “dead cat bounces” and “suckers rallies” as the shear weight of money looking for a home is force-fed into the market looking to time the next bull. At some point it will stop when everyone has been hurt enough and can’t take any more.

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