Bad time to buy stock?

badger09

jaypers said:

There is never a bad time to enter the market, providing you are thinking long term. Whether you put a lump sum in or drip feed is another matter and if the former, timing can be everything. 

But you you won’t know if your timing was right or wrong until you have the benefit of hindsight. So…….

phlebas192

Uriziel said:

After checking the graphics historically I noticed that nearly the whole growth stems from 6 months of increases up to the end of year. It seems that nearly always after an all time high the market drops during the next 3 months, then stays the same for a while and then starts going up.

Nearly always after an all time high the market sets another all time high during the next 3 months.

PixelPound

A few things to consider:

- The False Rally. This is where the stock market falls, say 10%, bottoms out and starts to recover, you then invest only for it to fall another 20%

Maybe you think you'll just wait longer, in that case

- Missing the 10 best days. This is where if you missed just the 10 best days in bear markets over 20 years, then your return drops by half. https://finleydavis.com/articles/cost-of-missing-best-market-days/

The biggest rallies often follow big drops but if you wait too long you miss out on the best days, if you go too early you risk it falling further.

A really interesting piece is https://tradethatswing.com/a-history-of-stock-market-percentage-declines-15-to-50-in-charts/ that looks at drops of 15% or more over 2 week intervals (so ignoring all these drops that bounce back after a couple of days), and makes you realise how common they are.

Personally I am investing (Pound Cost Averaging) but putting a third away into a HYSA (reg savers 7%+) as my cash "dry powder" which I'll invest at stages of big drops, 10%, 20%, 30%+. plus also doubling my PCA during the down turn.

However we might not get a big correction for a while. It might happen in next few months, or may not until 2028 or 2030. Question is how long are you willing to wait? 

vacheron

Uriziel said:

I understand but there has never been a time where the market was at an all time high and then it just kept going up. I think there is even a possibility that if you buy now, the market will crash in a few months and in a year's time you'll be back where you started.
I am not talking about waiting for a specific news report in the hopes of stock shooting up. It feels like a no brainer to wait for a dip even a small one?

Just take a look at the chart below (S&P 500, 1970 - present) and see how much of the last 55 years have  been "at an all time high".

If you want to protect a lump sum against short term volatility, split it up and invest monthly over a year or two.
If the markets fall you may benefit a little..... but not if they keep rising!

The worst thing you can do is hold an investment as cash while "waiting for the right time", because if things keep rising, you will become paralysed as you have to wait for an ever larger and larger fall to reach your original "acceptable" buy-in price.

You can see this very clearly in the people who chose to rent 10-15 years ago predicting a house price crash, who have now well and truly missed their boat, but can't bring themselves to stomach the "losses" and buy back in!

InvesterJones

Uriziel said:

I understand but there has never been a time where the market was at an all time high and then it just kept going up. I think there is even a possibility that if you buy now, the market will crash in a few months and in a year's time you'll be back where you started.
I am not talking about waiting for a specific news report in the hopes of stock shooting up. It feels like a no brainer to wait for a dip even a small one?

As others have pointing out, your understanding in the first statement is wrong - I mean, yes, there's never a time when the market just keeps going up, full stop. It rises and falls all the time, and it reaches all time highs all the time too. There is always the possibility the market will crash, which is what you already factored in when deciding to buy equities right?

As for waiting for a dip.. it's far from a no brainer. Imagine you decide to wait. Then the market goes up 3% and then there's a 1% dip. Horay, you bought in a 'dip', but you're buying at a higher price than if you hadn't waited for a dip. This is a really common scenario.

chiang_mai

Whilst most of the things that have been said thus far are true in that trying to time the markets is mugs game, there is one word of caution. Markets are extremely concentrated right now and waiting until they unravel has some merit. Concentration in the S&P500 is constantly in the headlines whereas in reality, the FTSE100 is even more concentrated.  

https://www.investments.lloydsbank.com/get-inspired/news/article/13463229

Alexland

I wouldn't worry about the S&P500 and the FTSE100 being at/near all time highs - that happens a lot.

I would be concerned that people are paying high valuations for future earnings particularly in the US markets and such premiums can be resolved by a crash, a period of lacklustre growth or more impressive earnings growth however it's hard to avoid the fact people are paying more than historical norms and that seems likely to affect future returns somehow.

https://www.multpl.com/s-p-500-pe-ratio

But I wouldn't say it's bad enough that people shouldn't invest or switch in and out of cash (as the research suggest most people get their timing wrong) it's just something to be aware of.

If you invest in equities right now you really need to take a very long term view and be aware of the potential pain ahead there is nothing to suggest it will be an easy ride. However over the very long term they are still likely to produce the best results.

Bonds are now offering attractive yields following their massive price crash (they were grossly overvalued and the crash gained little media attention) so considering the valuations and opportunities of both equites and bonds I'd advocate a diversified approach to portfolio construction. The next stock market crash may not recover quickly so consider the risks you are willing to take carefully.

Eyeful

Uriziel 

1. You really do sound like a newbie. If only making money from the markets was that easy.
 Many newbies before you have looked at the stock market charts & thought the same way as you. 

What you are attempting is called "trying to time the markets".
Its the present day equivalent of the ancient foretelling the future by looking at the entrails of a sheep.
Or looking at the tea leaves in your cup.
Its a mugs game. 

2.  Investing means putting your money at risk, you hope to get more out than you put in.
There is however, no guarantee you will win. You may still loose.

3. Only money you will not touch for say at least 10 years, should be in investments.
The longer you invest the, higher the odds of you winning the game are.
That why it "Time in the market not timing the market"

4. Investing when done correctly is as exciting as watching paint dry.
It should allow you to sleep at night and not worry about your investment.
If it causes either of these your risk level is set too high and needs to be reduced.

5. Remember no one rings a bell at either the top or bottom of a market cycle.
 You only see them for what they are with hindsight.

phlebas192

FWIW, I've run the numbers for the S&P 500 for which I've got closing prices going back to the start of 1962. On roughly 7.2% of trading days the index hit a new high. A further new high was then reached within 3 months in 97% of those cases.

It's only with hindsight that you can look at a particular high and say "that was the peak".

saajan_12

Uriziel said:

I understand but there has never been a time where the market was at an all time high and then it just kept going up. I think there is even a possibility that if you buy now, the market will crash in a few months and in a year's time you'll be back where you started.
I am not talking about waiting for a specific news report in the hopes of stock shooting up. It feels like a no brainer to wait for a dip even a small one?

Well no, if the 'small dip' was smaller than the gradual drift upwards between now and just before that dip, then you're worse off.