Investors have proven once again that market timing doesn't work and that the stock market is impossible to predict.
The first week of December was a wild ride for the Dow Jones Industrial Average. The Dow dropped 680 points on Monday, Dec. 1, then gained 270 points Tuesday and 172 points Wednesday, then dropped 215 points on Thursday before rising 259 points on Friday.
Thus, the Dow fell 7.7 percent on Monday but rose 6 percent from Tuesday to Friday. So, what's the point?
It's this: That Monday consumers sold $16 billion worth of stock mutual funds, according to TrimTabs Investment Research. Consumers then invested $4 billion back into those funds by Friday. In other words, they sold on Monday when the market dropped 7.7 percent and bought on Friday after the market had gained 6 percent.
They sold low and bought high.
Everyone knows the way to get rich is to buy low and sell high, but time after time, people make the mistake of doing just the opposite. They hear bad economic news and see a decline in the market value of their portfolio and they panic. They sell when they should be buying. They buy when they should be selling.
No matter how many times I warn that it's virtually impossible to correctly time the market, people ignore my words.
The way I see it, there are two kinds of investors: those who don't know how to engage in market timing, and those who don't know they don't know how to do it.
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