In his book – Learn to Earn, Peter Lynch discusses why more money has been lost by investors trying to time corrections than has been lost in all corrections combined. Here’s an excerpt from the book:
It’s natural that we should try to take action to protect ourselves from bear markets even though this is in one case where being prepared like a boy scout is a mistake.
Far more money has been lost by investors trying to anticipate corrections than has been lost in all the corrections combined. One of the worst mistakes you can make is to switch in and out of stocks or stock mutual funds hoping to avoid the upcoming correction.
It’s also a mistake to sit on your cash and wait for the upcoming correction before you invest in stocks. In trying to time the market to sidestep the bears people often miss out on the chance to run with the bulls.
Starting in 1965 if you are unlucky and invested your two thousand dollars at the peak of the market in each successive year, your annual return was 10.6 percent. If you timed the market perfectly, invested your two thousand dollars at the low point of the market each year, your return was 11.7 percent. So the difference between great timing and lousy timing was only 1.1 percent.
Of course you’d like to be lucky and make that extra 1.1 percent but you’ll do just fine with lousy timing as long as you stay invested with stocks, buy shares in good companies, and hold on to them through thick and thin.
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