I don’t believe in timing the market. There is plenty of data to prove that people who try to time the market almost never beat the average. It’s a fools game of speculation, and worse, it’s speculation of the mob mentality. I can do all the fundamental valuation of a stock, but I can’t tell you what Mr. Market will do tomorrow.
The chaos happening in the market the past 6 business days is fascinating to watch. The FUD (fear, uncertainty, and doubt) is running rampant, and as a calm investor I’m sitting back ready to pounce. You see, although I don’t try to time the market in general, it’s common knowledge that the best time to buy is when fear is running high and everyone else is selling. That time is now.
The image above is the Market Volatility Index. Essentially, it measures investors fear. And when investors are fearful, they are selling stock and running for the hills (cash and treasuries). You’ll see that in the past 5 years, there are a few other spikes in the VIX, and it aligns perfectly with sharp drops of the S&P500. Since I’m in it for the long run, and I’m interested in dividend-yielding stocks, I’m happy to see this fear driving yields up.
I don’t know if we’re bottomed out after today’s drop. Frankly, I doubt it. P/E ratios for the S&P 500 are just now getting below 20, still significantly higher than where they should be. On the other hand, stocks are certainly more attractive now than they were 2 weeks ago, which is why I’m going to continue to consistently allocate more money out of cash and into stocks over the coming months. I invested $35K this morning (after the predictable sharp drop of the opening bell), and I’ll invest $35K-$50K more each month until I’m at my desired asset allocation.
I’m staying the course and, hopefully, taking advantage of the mad chaos we call Wall Street. What are you all doing?