Why slow money is better than fast money
It's only February. When we rang in the new year, who could have predicted that the novel coronavirus would reach our shores.
None of us knows how the stock market will look like in the coming weeks or months. In case you'd like to read more, Chin Hui Leong covers why you should not abandon the stock market given the current situation here.
Events in the past month have shown that when it comes to trying to predict what will happen in the financial markets in the short term, it is essentially an act of futility.
There was one particular event that happened some time ago that I read with great amusement.
CNBC, April 7, 2014: "Scared Dennis Gartman: Get out of stocks"
"[Gartman] pared down his exposure to equities from an average of 100 per cent, to close to zero."
CNBC, April 21, 2014: "Gartman: I'm back in stocks"
"Two weeks after making a substantial call to get out of equities, Dennis Gartman now says that he's reentered the market and has become "pleasantly long" of stocks."
On CNBC's "Fast Money" on April 7, Gartman said that he was "scared" out of all of his positions in stocks by a market reversal the previous Friday. "I'm not sure what happened, but something happened between 11 and 11:15, that everything turned on a dime," he said.
In summary, the "Fast Money" pundit basically sold out almost all of his share positions on 7 April 2014, only to buy it back 14 days later. And, as it turns out, the bold moves were based on his observation of the market over 15 whole minutes.
So, let's put this into context.
If we decided to what the "Fast Money" pundit did and change our minds on our portfolio every 14 days, we would be selling and buying for 26 times each in a year. At $25 per trade, we would be looking at $650 in trading cost per share every single year.
Multiply that by the number of shares in the portfolio, and it quickly becomes an expensive indulgence. That's a mighty high trading cost hurdle the "Fast Money" crowd need to overcome before drawing any gains.
Instead, if that $650 had been put into the SPDR STI ETF and held over 10 years up to 31 January 2020, the investor would have been grown it to over $1,000 than over this timeframe.
That just sounds like a better deal to me.
GET SMART: GETTING RICH SLOWLY
Staying focused on the long term allows us to measure our performance over 15 years rather than 14 days or 15 minutes. Timing the market may sound smart, but the odds are largely not in the individual investor's favour.
And that's what we do here at The Smart Investor. If you'd like to learn more investing concepts, and how to apply them to your investing needs, sign up for The Smart Investor's free investing education newsletter, Get Smart! Click here to sign up now.
This article was first published in The Smart Investor. All content is displayed for general information purposes only and does not constitute professional financial advice.