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- Post #8 The curious case of Benjamin "Bottom Fisher"
Post #8 The curious case of Benjamin "Bottom Fisher"
Gaurav Singh
October 21, 2022
Just like Benjamin Button, Benjamin "Bottom Fisher" has a very special ability. In any given year he can predict the exact day on which the market will bottom. He can do it with spot-on precision every single year.
He uses this ability to "time" his yearly investments. He invests a fixed amount of money every year at the very bottom of the year. Due to his immense talent, it is just a matter of time before he becomes a billionaire; or maybe even surpasses the record of Warren Buffet.
What do you think of Benjamin's prospects?
He must have a huge advantage right?
An answer from Peter Lynch
In an interview with PBS, Peter Lynch discusses this issue. He says:
People spend all this time trying to figure out "What time of the year should I make an investment? When should I invest?" And it's such a waste of time. It's so futile. I did a great study, it's an amazing exercise. In the 30 years, 1965 to 1995, if you had invested a thousand dollars, you had incredible good luck, you invested a the low of the year, you picked the low day of the year, you put your thousand dollars in, your return would have been 11.7% compounded. Some other person put in the first day of the year, their return would have been 11.0%.
Recapping the findings from his comment:
The perfect market timer a.k.a. Benjamin "Botttom Fisher"'s compounded annual returns: 11.7%
Compounded annual returns of a "mortal" investor who invests at start of each year: 11.0%
This clearly shows how futile the activity of "market timing" or "bottom fishing" is. It is simply not worth the effort.
Don't try to time the markets
Even if you can time the markets perfectly, the advantage is very slim.
The time spent on market timing is not worth the effort.
No one has ever figured out how to do it correctly.
The fate of those who still try
You see, trying to time the markets is something that if done perfectly (which is impossible) will give an investor nothing much, but if done incorrectly, will cost an him/her fortunes. This is the worst kind of tradeoff an investor can put himself/herself against.
You want things that if they work, make you a fortune and they don't, it doesn't cost you much. Not the things which if they work, don't make much difference, and if they don't, cost you a fortune.
Poor Benjamin! only if instead of possessing the "gift" of "bottom fishing", he had the gift of picking great quality businesses at reasonable prices and holding them for long periods. His fortunes would surely have been different then.
Take care folks! Don't try to time the markets ❤️