If the market is going to get worse before it gets better, shouldn’t I sell now?

Selling when the markets are down may reduce your immediate worries, but how likely are you to know when to get back in? Not likely, says Kevin Grogan. Listen as he explains why market timing is a loser’s game.


Tim Maurer:
Hello and thank you for tuning in to Ask Buckingham, an ongoing video podcast series where we invite thought leaders across many disciplines in wealth management to respond to the questions on your mind. My name is Tim Maurer and I have the privilege of hosting these short Q and A discussions as the Director of Advisor Development for Buckingham Wealth Partners, and I also want you to know that I’m a Wealth Advisor with more than 20 years of experience and a client of the firm. The volume of information coming at us these days is so vast and the pace at which that information arrives is so fast that it’s a struggle to keep up with what you need to know to make the best decisions for you and your family. Our hope, therefore, is that this ongoing conversation will become a source of clarity in the midst of confusion and chaos and provide insight that helps you better understand what’s going on in the world financially and otherwise.

Tim Maurer:
Today, we’ll be hearing again from Kevin Grogan, Buckingham’s Managing Director of Investment Strategy, and here’s the question we’ll be tackling. Kevin, it looks like the news is going to get worse before it gets better, so why shouldn’t we just sell now and wait for the market to show signs of strength again before buying back in?

Kevin Grogan:
So strategy, like you just described, is what we would call market time, we’re trying to identify when to get in or out of the market. And really the difficulty that we see with market timing, and this is backed up by a lot of the academic evidence, that you have to be right twice when you try to time the market, both when to get out of the market and when to get back in. So you can use this as an example or think back to the financial crisis as an example, but let’s say you knew with perfect foresight that, say, June of 2007 was the perfect time to sell out of stocks because you knew that a housing crisis was coming. Let’s say you timed that exactly right.

Tim Maurer:

Kevin Grogan:
You would also then have to be right about when to get back in the market because even though the market crash from June of ’07 all the way up through March of 2009, the calendar year 2009 was a fantastic year for the stock market, and so the question is what do you have been able to predict that the end of March was the absolute optimal time to get back in? And I know relatively few people, I don’t know any people, who’d be able to get both timing decisions exactly correct. So again, let’s use the current situation as an example, let’s say you knew with certainty, 100% certainty, that the news was going to get worse from here, and again, I don’t know that with 100% certainty, but let’s say you could predict that the news would get worse from here and that now is the time to get out of the stock market, you would still have to know on the second time around when to get back into the stock market.

Kevin Grogan:
And it never feels safe getting back in after you’ve gotten out and so that’s really the big key message I would share with investors, is that you don’t know when it’s going to be safe to get back in. You have to be right twice if you want to win with the market timing strategy.

Tim Maurer:
Well, Kevin, but you can’t tell me, you’re an actual investment pro, you’re sitting behind the computer looking at this stuff, collaborating with a bunch of other investment brainiacs, have you ever been tempted to try and just hit the sell button and wait on it yourself?

Kevin Grogan:
I have not and I’d say a couple of reasons. Number one, I don’t claim to have expert level knowledge about the path this virus is going to take. I’m following experts as best I can like everyone else, and that’s also what the market is doing. And so that’s the first thing I’d share, is that the art industry reacting to this news instantly just like I am as an individual. It’s like a thing I’d share, in my own personal circumstance, is that I have a very long time horizon. So I know that the market is going to pull back, not just this period of time but many times over my investment horizon, but I also take comfort in knowing that over the longterm stocks have outperformed cash, they’ve outperformed safe fixed income, so I would expect that to continue over my relatively long investment horizon.

Tim Maurer:
All right, well, so not everybody has a long investment horizon, so knowing that the news could get worse before it gets better but that we can’t optimally time both the sell and the rebuy, how can the average investor apply this knowledge today, Kevin? Just sit there with a white knuckle grip and hope for the best?

Kevin Grogan:
No, that would not be the advice in this circumstance. The main piece of advice I’d have is building out a well thought out asset allocation first. So I mention that I have a relatively long time horizon, but I’d say with any assets you need here over the short term, say over the next three years certainly, maybe as long as five years, those dollars should not be invested in stocks. Those should be invested in safe fixed income securities so you can fund the withdrawals that you’d need to fund your lifestyle. So that’s a huge part of what we do at Buckingham, is building out safe fixed income portfolios that can help fund a client’s lifestyle so that they’re not having to sell equities during a time period when they are pulling back as violently as they have here over the past few weeks. And then over and above that, it’s building out an asset allocation that matches your risk tolerance that you could stick with the strategy during periods like this.

Tim Maurer:
Sure. Well, Kevin Grogan, thank you very much and thank you for tuning into this episode of Ask Buckingham. If you have a question that you’d like to see us address, you can do so by navigating to the website askbuckingham.com, or you can email your question to question@askbuckingham.com, or you can just click the screen right here and it’ll immediately take you to the website where you can give us your question. Remember, there are dumb questions, but unfortunately there are plenty of poor answers out there. Our hope is that in giving you straight answers to your questions, you’ll be able to apply that knowledge in pursuit of good decision making. So please follow us and by all means, Ask Buckingham.

Ask us a question for a video.

Our hope is that in giving you straight answers to some questions weighing on your mind, you’ll be able to apply that knowledge in pursuit of good decision-making. If there is a topic you’d like us to address in a future video, share your idea with us!

Featured Guests

cheri dorsey
Cheri Dorsey
Co-Founder & Owner of Sessa & Dorsey, LLC

Cheri is the co-founder and owner of Sessa & Dorsey, LLC, an estates and trusts boutique law firm practice.

Mike Kenneally
Vice President & Co-Founder at ECD Lacrosse

Mike Kenneally is vice-president and co-founder of East Coast Dyes Lacrosse, a small lacrosse equipment manufacturing company in Maryland.

Michael O'Neal
Executive Director at OneWorld Health

Michael is the executive director of the global nonprofit One World Health, which partners with communities in developing countries to bring permanent, sustainable healthcare to the chronically underserved.

Moira Somers
Dr. Moira Somers, Ph.D, C.Psych
Neuropsychologist, Professor and Executive Coach

A neuropsychologist, Moira specializes in the growing new field of financial psychology.

Meir Statman
Meir Statman, PhD
Research Advisor

Meir Statman is the Glenn Klimek Professor of Finance at the Leavey School of Business, Santa Clara University. His research focuses on how investors and money managers make financial decisions and how these decisions are reflected in financial markets.

Brant Steck, CFP®
Brant Steck, CFP®
Risk Management Consultant, First Element Insurance Partners

Brant is a Risk Management Consultant at First Element Insurance Partners.

Featured Associates

Tom Bodin
Tom Bodin
Practice Integration Officer

As a Practice Integration Officer at Buckingham, Tom Bodin provides fractional CFO services to align wealth creation strategies for owners of legal, dental, and medical offices including tax, pension and retirement planning.

Kristen Donovan, QKA, CFPA, AIF®, QKA, CFPA, AIF®
Director of Retirement Plan Solutions

As the Director of Retirement Plan Solutions, Kristen brings more than 25 years of experience to helping business owners and savers make smart retirement decisions.

Aaron Grey
Aaron Grey
Director of Planning Integration

As the director of planning integration at Buckingham, Aaron helps advisors develop, implement, monitor and update wealth management strategies in pursuit of their clients’ financial goals.

Kevin Grogan
Kevin Grogan
Managing Director, Investment Strategy

Guided by academic research, Kevin Grogan, Director of Investment Strategy, oversees our overall strategy and helps clients and advisors alike distill complex investing topics. 

Jared Hoffman
Jared Hoffman
Managing Director, Relationship Management

As Managing Director at Buckingham, Jared provides education on best practices around cybersecurity. He is a member of Infraguard, a partnership between the FBI and public sector created to share information on cybercrime.

Blerina Hysi
Fixed Income Trading Manager

As fixed income trading manager, Blerina helps construct and maintain customized bond portfolios, all with an eye toward finding the best way to implement the client’s comprehensive financial plan.

Jared Kizer, CFA
Chief Investment Officer

As Chief Investment Officer and chair of the firm’s Investment Policy Committee, Jared evaluates findings from academic research and applies that learning to architect the firm’s investment strategy.

Jeffrey Levine
Jeffrey Levine
Director of Advanced Planning

As Director of Advanced Planning, Jeffrey serves as a technical resource for advisors and the firm’s primary thought leader regarding evidence-based planning concepts and strategies.

Irv Rothenberg
Irv Rothenberg
Wealth Advisor (Retired)

A Buckingham wealth advisor (retired) with more than 40 years’ experience, Irv’s passion is helping advisors and their clients create meaningful conversations around important end of life issues.

Jonathan Scheid
Jonathan Scheid, CFA, AIF
Managing Director, Solutions

With over 20 years of experience working with advisors and their clients, Jonathan enjoys sharing interesting perspectives on a wide range of investment and economic topics.

Susan Strasbaugh
Susan Strasbaugh
Wealth Advisor

As part of a firm of fiduciary, fee-only wealth advisors, Susan takes a total-care approach to identifying, organizing, planning, implementing and coordinating clients’ most important financial goals.

Larry Swedroe
Larry Swedroe
Chief Research Officer

As Chief Research Officer, Larry Swedroe has authored or co-authored 16 financial books and devotes all of his time to research and education in the areas of investing, financial planning and behavioral finance.