You can become a television star -- or at least make a lot of appearances on business and investing shows -- by pretending you know how to time the stock market. Saying you know that the bottom has been reached or that stunning new lows are coming will get a pundit a lot of attention.
It's also silly. Nobody can know if the equities market has hit the bottom of any given cycle or if new lows are coming. Nor can they predict market peaks -- any number of experts spent the latter half of the last decade prognosticating that the long bull market was "just about to end." Those who listened to them missed years of share price gains.
Trying to guess which way the wind is about to blow on Wall Street makes you a trader -- not an investor. You don't need to know when a stock has hit a cyclical low in order to be a savvy buyer. Instead, focus on buying shares in great companies that are well-positioned to deliver value in the long term.
The secret to picking the very best time to invest
This is an extreme example, but the chart above shows Amazon's (NASDAQ:AMZN) stock price growth over the past 10 years. The uphill march wasn't perfectly steady, but over time, it was overwhelming. Would it really be significant to your returns if you bought shares a few dollars cheaper early in 2010 or if you paid slightly more later in the year? Probably not.
But what if you stayed on the sidelines because you assumed that a quarterly report might bring some bad news that would send share prices down to where you considered Amazon a bargain? In that case, you might have ended up buying later at a much higher price. Or you might not have bought in at all.
The reality is that it made sense to buy Amazon stock at any point over the past 10 years. And, if you believe the e-commerce powerhouse still has room to grow, and that it has strong management that will make good choices, then it's still a good time to buy right now -- even with shares trading near their 52-week high.
There's never a bad time to buy shares in good companies. You won't always be right about where the prices are headed in the short term, but it doesn't matter. You can spread your purchases out over time to smooth some of those movements out. The key is to purchase shares of stock in companies you have long-term strong convictions about and then... do nothing.
Being a long-term investor means worrying more about the quality of the stocks you buy than about when you buy them. Amazon may seem like a unique winner, but it's not. (Look at Apple or Costco to name just two others that have similarly impressive long-term stock charts.)
Don't miss out on opportunities by trying to outsmart the market. As an individual investor, your greatest advantage is the ability to hold your stocks for a long time. Buy shares in companies that you believe in. Then, check on each one occasionally to make sure nothing fundamental has changed about the business that invalidates your investing thesis. Other than that, it's really just about sitting back and watching your portfolio grow, adding to your winners, and trying to identify new companies to invest in.
It's not that hard (sort of)
Patience isn't easy, and it's not sexy. People love telling exciting stories about buying low and selling high. It's a lot less glamorous to talk about how you steadily built a portfolio over 30 or 40 years that allows you to enjoy your retirement in style.
As an investor, you have to make the decisions that help you reach your goals. It's not about the story nor even the potential for a quick score. For most investors, it should be about building wealth over the long term, and if that's your aim, "now" is always a fine time to invest in a great company.