2. Think Long Term, Don't Try to Time Markets

  • Market inputs are impossible to predict consistently, both in terms of what will happen and investors will react.


In the short term, the market can and does misprice stocks. Short term market movements are based on emotions, sentiment, weather, politics, company results, management changes, wars, diseases, fashion changes and a million other variables. No human nor any computer can simultaneously predict all of these variables, as well as interpret how thousands of individuals will react to them. Many investment managers and pundits will make predictions on market direction- but these predictions are just noise. They should be looked through, so we can ignore the hype, media, fearmongering, overexuberance and clickbait that is all around us.

Whilst no- one can predict prices in the short run; in the long run, prices are determined by underlying company earnings. Nobody can predict short term sentiment, but patient, careful investors can predict long term earnings.

The simplest and easiest way to stack the odds in your favor is to invest with a long term horizon. Based on the history of the S&P 500 since 1950, with a ten-year horizon you had a 93% chance of positive returns.


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