A Horse Named Nostradamus

A few years ago, my wife and I came to own a horse we knew lovingly as “Louie.” Louie was a friendly animal, very kind and gentle to be around. However, a while later, we received his formal breeding/ownership papers in the mail and discovered his actual name was “Nostradamus.” 

We had a good laugh at his expense over his unfortunate naming, and the typical jokes began about Louie being able to predict the future. After all, the original (human) Nostradamus was a 16^th century Frenchman well-known for his prophesies and poems allegedly predicting future events.

No matter the century, predicting the future has always been challenging. However, whether we are trying to predict future events or what directional reactions they will cause within the investment markets, no one has consistently proven to have this soothsaying power.

Recently, in a meeting with a new client, they asked this question: “You’re going to call when I need to get out, right?” 

This question is legitimate. After all, who doesn’t want to work with a financial advisor who has his finger on the pulse of the markets, will call right before the next market drop and help move all investments safely to cash? Wouldn’t we all wish to experience only the upside and none of the downside?

That’s a great story. I would want that too. 

After he asked that question, I thought to myself, “Should a good advisor tell you when to get in and out of the market?” The potentially surprising answer is no. 

The problem is even the world’s best investors are wrong a lot. Famed money manager Peter Lynch, widely considered one of the greatest investors ever, says, “In this business, you’re great if you’re right six times out of ten.”

I’m not fond of those odds, especially considering that an incorrect call can have disastrous effects on a portfolio and leave investors with a permanent bad taste in their mouth regarding the markets in general. After all, if you had been invested for the last forty years but just happened to be out of the market on the ten best days during that time, you would have less than half of what someone who has invested the whole time. 

Charlie Munger, Warren Buffett’s vice-chairman at Berkshire Hathaway, has a quote that sums this up nicely: 

“The big money is not in the buying and the selling but in the waiting.”

The degree of difficulty for market timing is even higher than most people assume because investors typically look to jump in and out when emotions are running high. But, making decisions about your life savings when your feelings are steering the ship is a recipe for portfolio disaster on most occasions.

Calls to either go ‘all in’ or ‘all out’ of the market can turn out to be reckless or irresponsible in some instances. But if you maintain a proper level of risk with your money, you don’t have to worry about being wiped out by an unexpected downturn.

Most importantly, have a plan in place that works for you. In the long term, you should be able to reach all of your financial goals without the need for bold market predictions. So beware of any of these calls coming from the likes of financial “experts,” 16^th-century French astrologers, or my horse Louie. 

Chase Kerby, CFP®, AIF® is an Adviser with Rather & Kittrell.  Chase is available at [email protected].