Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, August 7, 1995 TAG: 9508070040
SECTION: MONEY PAGE: A-8 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Medium
A: All people who ask such questions are trying to do one thing: time the market. They are trying to make money by moving ahead of the market, changing back and forth among different types of investments just at the peak of every trend.
Several Roanoke Valley brokers agree, however, that few investors can time the market. Instead, they should be in the market over time.
The strategy is more than a play on words.
The best long-term strategy is the traditional belief that investing over a long period of time in the market is more important than trying to predict its abrupt changes, according to James Kern, manager of the Roanoke office of Interstate/Johnson Lane, a Charlotte, N.C.-based security brokerage.
Historically, people who try to time the market do well over a short period of time, Kern said, but they get out of sync with the inevitable up-and-down cycle. They miss an opportunity or they fail to get out of the way when a correction occurs.
Kern said the average investor should ignore the market's twists and turns and remain with investments on a sustained basis.
Become a consistent investor in the market, he advised, and watch where you invest. Unless you do that, Kern said, "the market will run over you."
Suzn Head, manager of the Roanoke office of Dean Witter Reynolds, said timing the market "is an extraordinarily difficult thing to do."
If you had invested $1 in the Standard & Poor's 500 stocks on Jan. 1, 1960, she said, the dollar would have grown to $19.45 by Jan. 1, 1990. The same dollar invested in Treasury bills would have turned into a mere $6.56 during those same 30 years.
But if you had tried to time the market and, therefore, missed the market's 10 best months, your S&P investment would have become only $6.58. In effect, Head said, you might as well have invested in Treasury bills.
"You risk losing the entire benefit if you try to time the market," Head said.
But you don't have to invest for as long as 30 years to ride out the cycle. Head said the average business cycle is four to six years.
From every statistic that Head has seen, she believes that "patience is going to be the ally of the investor."
Bill Nash, manager of the Roanoke office of Scott & Stringfellow, quoted Warren Buffett, the legendary investor, as saying that "the best holding period for a stock is forever."
For the average investor, Nash said, "buying and holding is the best strategy."
The trick is to find a good quality stock, he said, then hold it for a long time. Even professionals in the investment business admit that they cannot time the market all the time, he added. "That's what makes it so interesting."
John C. Parrott II, a certified financial planner and broker with Wheat First Butcher Singer in Roanoke, is a believer in the power of compounding. Buy a good stock in the first place, he said, and then hold onto it.
"The most astute investors let time work for them," Parrott said.
Timing seems attractive when the market is high and active, he said. People become nervous and ask themselves if it's time to get out, and that becomes a self-fulfilling prophecy, Parrott said.
When timers hold sway, he said, they advise trading. And timers had a terrible year in 1994 when values went down, Parrott recalled.
That means it's time to look for good values, he said. People have to choose between being "a value player or a momentum investor."
Richard Wertz, vice president at A.G. Edwards and Sons in Roanoke, said he is unable to time the market. After 20 years in the business, he added, he has never seen anyone who could do it for very long.
Many experts have been advising people to move into cash investments for the past three or four months. People who followed that advice, he said, missed out on one of the greatest surges in market history.
Studies show that it hardly makes any difference when people invest in mutual funds. Buy high or low, Wertz said, and you will still come out the same if you stay with a good fund.
History teaches us to stay in the market for a long period of time, Wertz said. "It works out better."
If you try to time the market, he said, "you end up losing money."
by CNB