With recent attacks on our shores in the heart of our commercial and financial centers, the stock market closed down for several days, war rhetoric rampant, talk of imminent recession or worse, and Congress in a mood to spend money we do not have with patriotic fervor, it is very tempting today (9/15/01) to try market timing.
Surely now it can be certain that the stock market will go down and that airline stocks in particular will plummet almost as fast as did the Twin Towers of the NY World Trade Center. It must be obvious too that defense industry stocks will do well in this kind of environment. But attempting to correctly guess the direction of markets is almost always, sooner or later, a fool's errand. The gains one may make in even a series of correct guesses are often more than offset by losses when one is wrong.
In this case, Americans and others could rally to the cause of stocks, buying to bolster them now in a spirit of patriotism, much as, in World War II, we were encouraged to buy bonds to help our nation. While that seems unlikely, the truth is one almost never knows ahead of time just what "Mr. Market" will do and why. Even airline stocks are not a sure bet to fall. Congress is earmarking billions of dollars to assist them. Maybe they will rally on this news instead.
As for the defense industry, it could still take some time before new expenditures lead to real profits. And what happens when everyone fully realizes that there will be no quick fix for terrorism? We cannot in one massive raid rid the world of evil.
Successful market timing requires knowing not only when to buy but also just when to sell, a dicey question. Overall, few ever manage sustained profits in this way.
By contrast, many have seen moderate investments grow to real wealth through purchase of carefully selected shares in good businesses, held for the long haul. If now seems a little too risky a time for investing, market volatility being what it is during national crises, then consider dollar-cost-averaging, buying equal dollar amounts of shares in good companies or mutual funds at regular intervals over time. One thus buys more shares when the market is low, fewer when it is high, with an almost automatic benefit: lower average cost per share.