If you’re an index fund investor and follow the NASDAQ composite you may or may not have realized that you had an opportunity, not so long ago, to double your money in less than two years. It was pretty simple actually, all you had to do was predict exactly when the market would hit bottom, and purchase stocks on that day. Not so hard, right?
The week of March 2, 2009 saw the market hit bottom (at least in the recent future). Where was bottom for the Nasdaq composite?
1,293.85
The market hadn’t been that low since mid 2002, and prior to that 1997 was the last point it was that low.
What’s the market at today?
2,649.56
If you would’ve invested the week of March 2, 2009 and sold today your return on investment (total, not annualized) would be just shy of 105%. Not too shabby huh?
Apparently it wasn’t obvious that the market would hit bottom on that day because trading volume remained steady.
Now I’m not writing this to remind you that you didn’t double your money, but simply to remind you that…
Specific Market Timing Doesn’t Work… Well Kinda
If you’re a single investor who passively invests in the market you’re not going to time the market precisely, it’s just that simple. I didn’t guess March 2, 2009 either so don’t feel too bad, however it was in a time frame when I was buying stocks so I am reaping the benefits of purchasing when the market was lower than it is today. If you’re taking a long view approach and investing for retirement you probably shouldn’t be too concerned with short term market fluctuations anyways, so you shouldn’t be trying to time the market… or should you?
Although you can’t time the market down to a particular week you can follow a simple principle that made the richest man in the world, well, rich; and that’s buy low. When are stocks low? When others are fearful. Do you think there was much fear in the market back in early 2009?
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Warren Buffett
Although you probably didn’t hit the exact date for bottom if you followed Buffett’s advice you probably saw that the market was injected with a good amount of fear which meant it was a good time to buy.
If you follow the advice of Buffett and buy when others are fearful you too have opportunities to double your money in shorter periods of time.
Did you invest in early 2009?
Market timing does work – I managed to time my exit from the last of our directly held stocks during the first week of March 2009. Just think how much more we would have lost if we had hung on for those last 7 days! 🙂
But seriously, we were lucky remain invested on the way up as well through our index funds. They are now 70% up from where we bought them – in March 2009.