Do You Have Timin'?

Singer Jimmy Jones had a catchy song at the top of the charts in 1960 titled “Good Timin’”.  It included lyrics that went something like this:

“Who in the world would have ever known, what Columbus could do,

If Queen Isabella hadn’t hocked her jewels in 1492?

But she had timin’….”

I thought about that song after reading a recent Wall Street Journal article about billionaire hedge fund manager George Soros losing nearly a billion dollars in the stock market in the aftermath of the presidential election.  It seems that Soros bet against the stock market rising; but in fact, the stock market rose 9% in the weeks right after the election.  It should be noted that Soros gave millions of dollars to pro-Clinton and pro-Democratic party political action committees (super PAC’s) in the run-up to November 8.

I don’t think 2016 was his year.

Fortunately for you, you didn’t have your money invested with Mr. Soros.  While his personal investments lost big bucks, even his company’s more diversified portfolio only eked out a 5% gain for the year.  The S&P 500 (a broad representation of the total stock market and a benchmark for general stock market performance) was up nearly 10% in 2016 and probably more like 12% if dividends were reinvested.  And you could have made a similar gain on your own investment by just having your money in an S&P 500 index fund that cost you as little as a couple of tenths of one percent of your invested money.  I think it’s safe to say that investing in Soros Fund Management comes at a somewhat higher cost.

So what do we learn from this:

Lesson 1: The experts aren’t always right.  Enough said there.

Lesson 2: “Timing” your investing is typically a losing strategy.  Yes, it’s possible to win big; but it’s equally probable that you will lose big.  And investors like you and I don’t have the financial cushion to lose big. 

If you are invested in a 401k account, you’ve likely heard the adviser from the firm in which your money is invested talk about “dollar cost averaging”.  Without expounding on details, the gist of that strategy is to invest consistent amounts of money at regular intervals.  It’s akin to the “buy and hold” approach that I prefer:  select a few high quality mutual funds (or other investment vehicle of your choice), invest in them regularly, and don’t go switching them around whenever you get spooked by something in the news.  You may recall that on election night the stock market futures (supposedly predictive of the next day’s stock market activity) lost hundred of points.  If you had panicked and moved out your investments you would have missed the market rally.  Even if you got out, then saw the market was going up, and decided to leap back in, you would have lost out on the critical early gains that would have jump-started the growth of your investment.

Lesson 3. Maybe you should leave your politics in the voting booth.  Did Mr. Soros’s political views and hopes sway his investment decision and perhaps blind him to other factors that would have led him in a different direction?  Possibly.  Consider this: His former assistant made beaucoup bucks in the stock market after the election.  He supported the Republican ticket.  Are you willing to bet your financial future on what voters in Wisconsin do in November?

So what does history tell us about Queen Isabella’s timing of her “investment” in discovering America for Europe?  Well, she had actually invested in what was supposed to be a venture to find a shorter, all-water route to Asia and its spices and other riches.  That didn’t quite turn out—not unlike some investments you and I may have made in the past.  On the face of it, the investment was a failure.  But if Spain had held on to some of the land she claimed from Columbus’s (and others’) ventures, the initial investment would have paid off handsomely.  Can you imagine what Florida would be worth today?  An extreme version of “buy and hold”, huh?

And yes, lesson 4:  song lyrics are worthless as investment advice.

Till next time,

Roger

“God makes everything happen at the right time.  Yet none of us can ever fully understand all he has done, and he puts questions in our minds about the past and the future.”  Ecclesiastes 3:11 (CEV)