Someone asked this week: "When do we buy the market?" Well, sorry, but if that's what you want to know, you're doing it all wrong.
The only time you should be asking when to buy the market is if you are trading "the market", literally. That's to say if you are trading an exchange-traded fund that represents the market like the ASX-listed SPDR S&P/ASX 200 Fund (code STW) or maybe contracts for difference (CFD) over an ASX index or maybe one of the large listed investment companies that represent the market, such as the Australian Foundation Investment Company.
Other than that, it is unrealistic to be looking for a moment in time when you go "all in" or "all out", and if that's what you are waiting for, you are going to be waiting a long time because there are not many people brave enough to do it - to sell their whole portfolio in one decision or to put their whole retirement into the market on another.
The ordinary investor's risk appetite doesn't allow for that. The ordinary investor is too sensible, thoughtful and considered to make big decisions in small timeframes, and the net effect is that the ordinary investor is too smart for their own good, debating and delaying until they are buying at the top and selling at the bottom and only ever doing anything when it is bloody obvious, when the whole market is talking about it and when it is being announced on CNBC and by then, of course, it is too late.
From 1985 until the top of the market in 2007, we saw a long-term bull market driven by a credit (debt) boom and the ordinary investor didn't really have to worry about risk. When the market goes up 9 per cent per annum and pays a yield above 4 per cent, it is not very risky and you can procrastinate all you like. But the cost of earning 12 per cent per annum for 26 years without thought or decision is now upon us and the post-credit boom market is not predictable, low-risk and progressive. It is uncertain, risky and volatile, and it requires a whole new approach not suited to procrastination.
The post-credit boom market investor cannot afford to dither because if it is anything like the Japanese market over the past 20 years (seven bull markets averaging 58 per cent and eight bear markets averaging minus 41 per cent), you are going to have to be a little more decisive.
How decisive are you? Well, it is pretty simple to find out. The global financial crisis saw our market peak in November 2007 and bottom in March 2009. It spent just over 16 months going down. It was one of the few events in living history when an "all out" decision should have been made. So when did you sell? How constipated is your stock market decision making. If you sold before December 2007, then stop reading. If it took you until March 2008, when the market was down 26 per cent, then you are mortal. If you waited until Lehman Brothers went bust, you are going to have to change your game, and if you sold any time after that, then you just carry on doing what you are doing because without you the rest of us would not be making any money.
And if you never sold at all, then you are still living in the matrix, a fantasy world created by the financial industry that has your brain washed into thinking that you can't time the market, the stock market always goes up in the end and that the only approach is to "set and forget". You should be in term deposits ... forever.
But, of course, you won't change the market has but you won't, and after 26 years of investment success, who can blame you. But the post-boom market means a lot of long-term investors have to change, to be a little more decisive, and for those of you who will struggle with that, here's a technique for you to think about, to ease that "all in" and "all out" decision-making process.
Forget "the market" and start focusing on stocks. Buy and sell the stock market one stock at a time. Each trade an isolated skirmish. Break the big decisions down into a lot of little decisions. Buy stocks and sell stocks and the market decisions will look after themselves. Buying and selling "the market"? It is so last decade.
Frequently Asked Questions about this Article…
Should everyday investors try to time the market and go "all in" or "all out"?
No — the article argues timing "the market" for an all‑in or all‑out move is unrealistic for most everyday investors. That kind of decision is mainly relevant to traders using market products (like ETFs, CFDs or large listed investment companies). Ordinary investors tend to procrastinate, which risks buying high and selling low, so a different approach is recommended.
When does the article say it makes sense to trade "the market" rather than individual stocks?
The article says trading "the market" is appropriate if you are literally trading a market product — for example an ASX‑listed ETF such as the SPDR S&P/ASX 200 Fund (code STW), CFDs over an ASX index, or large listed investment companies like the Australian Foundation Investment Company. Otherwise, focus on stocks rather than trying to time the whole market.
Why does the post‑credit boom market require a different investing approach?
According to the article, the post‑credit boom market is more uncertain, risky and volatile than the long bull market that ran from 1985 to 2007. After decades of easy returns, investors can’t afford to dither — the environment demands more decisiveness and active decision‑making than the previous low‑risk, progressive market did.
How did past bull markets encourage procrastination among investors?
The article notes that from 1985 to the 2007 peak investors enjoyed strong, reliable gains (market rises around 9% p.a. and yields above 4%), so many could procrastinate without obvious penalty. That era made it easy to 'set and forget,' but the article warns that approach is less suitable in today’s post‑boom market.
What lesson does the article draw from the global financial crisis (GFC) about investor decisiveness?
Using the GFC as an example, the article notes the market peaked in November 2007 and bottomed in March 2009, with a steep fall over about 16 months. It challenges readers to reflect on when they sold: those who delayed until the worst signals (eg, Lehman Brothers) demonstrated a need to change their decision process. The point: big market events expose indecision.
Is "set and forget" investing still a valid strategy according to the article?
The article suggests "set and forget" worked well during the long credit‑driven bull market but is less reliable now. It calls the idea that you can simply ignore timing the market a fantasy promoted by parts of the financial industry, and recommends adapting to a market that is more volatile and unpredictable.
How can everyday investors reduce paralysis when making buy and sell decisions?
The article recommends forgetting about trying to time the entire market and instead focusing on individual stocks. Treat each trade as an isolated decision — buy and sell one stock at a time, breaking big portfolio choices into many smaller, manageable decisions to avoid paralysis.
What comparisons does the article make to illustrate market volatility investors should expect?
The article compares the post‑boom market to the Japanese market over a 20‑year span, noting extreme swings — seven bull markets averaging 58% and eight bear markets averaging −41% — to illustrate how dramatic volatility can be and why investors may need to be more decisive.
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