Warren Buffett’s Top “Secret” Advice to Investors
“Trying to time the market” is the #1 mistake to avoid
Investing legend Warren Buffett and Princeton Economist Burton Malkiel each have great responses to perhaps the oldest stock market investment question:
When it comes to timing the stock market, what’s secret?
Prof. Malkiel’s response is my favorite:
- It’s easy to understand,
- Avoids misleading math &
- Eliminates the possibility of hand picked time-periods:
“I have never known anyone who could consistently time the market. And in fact I’ve never known anyone who knows anyone, who was able to consistently time the market.”
Malkiel’s book, the 1973 investment classic, Random Walk Down Wall Street, among other things, encouraged the creation of the first index funds.
If anyone might know someone who could consistently market-time, he might have heard of this person, right?
“…and the lesson about timing is: not only do you not know when to get in, you don’t know when to get out. And when you market-time you got to be right twice. You got to know when to get out and when to get in. And nobody and I really believe this: nobody but nobody can do that.” (72:30)
This is from his May 2016 interview with Barry Ritholtz, host of Bloomberg’s Masters in Business: you can skip forward to 66 minutes and 72:30, but I recommend the full interview if you have time. link to podcast
What does the world’s most successful investor — the one with the biggest wallet — have to say about market-timing?
In 2016 Warren Buffett’s fortune grew more any other American.
He also holds the top spot in Finance and Investments on Forbes’ The World’s Billionaires by a long shot. His wealth is 3x that of the category’s #2, of George Soros. Overall, Buffett’s wealth is only exceeded by that of his pal Bill Gates.
Warren Buffett: “Trying to time the market” is the #1 mistake to avoid:
“People that think they can predict the short-term movement of the stock market — or listen to other people who talk about (timing the market) — they are making a big mistake,” says Buffett.
In a USA TODAY interview on personal finances his #1 mistake amateur investors make is “trying to time the market”.
“The nice thing about investing in stocks is that, over time, equities are going to do well.
American business is going to do well.
America is going to do well. So you have the tide with you.”
Update: on Feb 27, 2017 he told CNBC viewers:
“I don’t know anybody that could time markets over the years…”
“…we are not in a bubble or anything of the sorts…”
The dynamism of the U.S. economy is “unbelievable,” he argued, adding there will be ups and downs in growth but “the U.S. always comes back and wins.”
“You’d be making a terrible mistake if you stay out of a game you think is going to be very good over time because you think you can pick a better time to enter”
Please share your comments below. Are there any successful market timers out there?
About the Author
Jason R. Escamilla, CFA is CEO of ImpactAdvisor LLC, a boutique Registered Investment Advisor based in San Francisco, serving individuals and corporate clients with advanced wealth management needs: high tax-bracket, custom-tailored portfolios, alternative investments, etc.
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