Timing the market
Why sometimes it might makes sense to be patient
If I had a crystal ball, I'd like to buy stocks at the bottom and sell at the top. But nobody can do that consistently over time.
I have been reading stories about an imminent crash since June... only to see the market print new highs for many more weeks.
I have a list of great stocks I want to add to my POTS but I haven't yet. Why?
Here is my reasoning in a nutshell:
1. I buy stocks for the very long term... and I believe the best strategy is to buy them consistently over time (once a month, a quarter, etc.). This is what is called "dollar-cost averaging"
2. I believe we are in a secular bull market and the 20' will be a decade of strong economic growth, especially as we are getting out of the pandemic
3. I believe that bear markets (set aside wars, pandemics and the like) are preceded by credit crunches: getting a loan or refinancing debt becomes more difficult and this becomes the first signs of a recession and bear market
4. the data show us that the market is fairly valued or slightly expensive
All of the above create the perfect environment to "buy the dip". This is my judgment and the dip might be many weeks away...
So what am I doing?
I am deploying PATIENCE before adding to my POTS
Concerns on a default in the real estate market in China might be the worry that will trigger a DIP as early as this week.
What is a DIP?
Personally, if the Nasdaq touches 14.700 or below I'll be happy to start adding. This would be about 4.5% from the recent ATH (all-time high).
I'll be sharing my decisions over the next few days and weeks.
Below are a few indicators that make me think this is a "BUY THE DIP" environment:
a) Credit - getting money from the banks is not an issue as delinquency rates are at an historical low:
b) Money availability (liquidity) as measured by M2 money stock in the US shows a slight slow down but not material yet:
c) Money velocity shows that inflation concerns should not be a real concern as inflation is determined by money supply (M2) and money velocity (number of times 1 single dollar in the economy changes hands over a single year, indicating economic activity):
Data credits: https://fred.stlouisfed.org/
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Important:
this is not investment advice. Consult a licensed financial advisor before making any investment decision.