Normally, I wouldn’t think twice about a 1-percent (actually 1.09%) drop in the Dow but given the front-page Money & Investing article in Monday’s Wall Street Journal about investors’ choice between selling ahead of a possible market decline, or hanging on in hopes of a rebound, I’m watching the ticks. Yes, that 179.11-point drop is the largest since September 20th’s 185.46-point drop, but so what?!
Market timing doesn’t work. So the notion that investors see the start to 2014 as “I don’t know what to do, I don’t know where to go” as one money manager says in the WSJ story, reflects poorly on how asset managers as a whole are doing in educating their clients. Let me repeat: Market timing doesn’t work. Market gains are random in their duration and in their occurrence.
“Sell in May and go away”? As the chart shows, the Dow was lower in June than at the end of May, about flat in August but after that … And that’s assuming the investor who sold didn’t panic back into the market after July’s big rise.
So, as you read the round-ups of today’s market action with the Dow falling 1.09%, or 179.11 points, remember that the only panic will be amongst those who are looking for reasons to take action—any action—rather than those with a clear investment plan and objective.
And by the way, the diversified, actively-managed portfolios in The Independent Adviser for Vanguard Investors were all showing gains, ranging from 0.3% to 0.7% through Friday’s close, compared to the 0.1% decline for Total Stock Market Index and 0.3% loss for 500 Index. Why? Active management works—but that’s another story for another day.
Senior Editor Dan Wiener and Editor/Research Director Jeffrey DeMaso publish The Independent Adviser for Vanguard Investors, a monthly newsletter that keeps abreast of recent developments at Vanguard, and the annual FFSA Independent Guide to the Vanguard Funds.