"Gold prices aren't going any higher," a friend remarked to me back in April. "I'm selling."
At the time, the Middle East looked set to erupt into all-out war. An Iranian drone strike in Israel had kicked off a swift escalation. Six days later, explosions were ringing out over the Iranian city of Isfahan...
As tensions flared, investors fled to the safety of gold. The asset rose to an all-time high on April 19.
My friend believed it was time to get out. He thought the top was in... and he'd be "selling high." Still, I told him to slow down before locking in gains.
Israel and Iran didn't go to war. But gold has kept on rising. The commodity is up nearly 5% since April, once again near all-time highs.
It's tempting to sell your assets after a big rally. I get it. But doing so robs you of one of your biggest advantages as an individual investor – your timeline...
Asset markets are incredibly tough to predict. And I don't just mean for small investors like you and me... It's hard for the big guys too.
For example, every December, Wall Street strategists try to predict where the S&P 500 Index will go the following year. These analysts expected the index would end this year between 4,200 and 5,400. And the average prediction was 4,861.
Well, the S&P 500 currently sits at 5,408... exceeding the estimates of all Wall Street firms. Take a look...
All of the analysts underestimated the S&P 500's growth potential. And it's still only September.
These are the "brightest minds in finance" we're talking about. They think about the stock market all day, every day. They have decades of training and access to the world's best information. Yet even these guys can miss the mark about where prices will go.
When markets are this hard to predict, moving your money based on a single data point – like a news story – just doesn't make sense.
And that's where you can really outshine these pro investors. You see, most of them don't have a choice...
That's because institutional investors have one crucial disadvantage compared to the little guy: They manage other people's money.
Since big money managers answer to outside investors, they have a lot of pressure riding on their shoulders. They have to prove themselves to stakeholders not just annually, but quarterly – or even monthly.
These analysts can never truly think long term. They're forced to chase opportunities to buy and sell, so they can show the gains to their investors. That's their whole game...
So rather than try and beat them at it, you should make use of the advantage you have – time.
If you hold assets long term, you're all but guaranteed to succeed. We can see this by measuring the win rates for stocks over various time frames going back to 1950. Take a look...
If you'd bought and sold the S&P 500 on any given day in this period, the odds of making money were a little better than a coin flip – 54%. But you can do much better by extending your timeline...
By holding stocks for a month, your odds of winning go up to 61%. Your win rate rises to 72% after a year. And if you hold stocks for just six years, your win rate shoots up to 91%.
What's more, your chance of positive returns after a 14-year holding period rises to 100%. And that win rate stays the same in every stretch after that.
So if you're an individual investor, I urge you to play to your strengths. You don't have to answer to anyone. You don't have to buy or sell every time a big story hits the news... And you can let compounding work its long-term magic.
Good investing,
Sean Michael Cummings
Further Reading
"Most investors don't hold stocks long enough to earn big multibaggers," Dan Ferris writes. Research shows it's critical to let your wealth compound over time. But most investors don't for one simple reason – they don't realize that most "news" is just "noise"... Learn more here.
"If your strategy is based off of calling bottoms and tops, you're in for a rough go," Dr. David Eifrig says. Buying great stocks to hold for the long term is a lot easier than trying to time the market perfectly. The secret is learning how to let your winners ride... Read more here.
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
Travelers (TRV)... insurance
AT&T (T)... telecom
Pearson (PSO)... at-home learning
Welltower (WELL)... health care REIT
Tanger (SKT)... retail REIT
General Mills (GIS)... packaged foods
Conagra Brands (CAG)... packaged foods
McCormick (MKC)... spices
Campbell Soup (CPB)... soup
Procter & Gamble (PG)... personal care brands
Kimberly-Clark (KMB)... personal care brands
Colgate-Palmolive (CL)... personal care brands
Clorox (CLX)... cleaning supplies
British American Tobacco (BTI)... cigarettes and alternatives
Southern Company (SO)... utilities
Duke Energy (DUK)... utilities
FirstEnergy (FE)... utilities
Enbridge (ENB)... pipelines
PPL (PPL)... natural gas
NEW LOWS OF NOTE LAST WEEK
Boeing (BA)... aerospace and defense
Hillenbrand (HI)... industrial equipment
Advance Auto Parts (AAP)... auto parts
Avis Budget (CAR)... rental cars
SLB (SLB)... oil and gas
Chevron (CVX)... oil and gas
Halliburton (HAL)... oil services
Mosaic (MOS)... fertilizer
