Growing Rich - Arabictrader.com

GROWING RICH WITH GROWTH STOCKS
what is causing the drop, to find out if it’s a temporary or permanent
problem. The worst thing you can do is panic out.”
THIS GLASS IS ALWAYS FULL
Shelby Davis insists he doesn’t believe in market timing because,
as an optimist, he thinks of the glass as always being half full, not
half empty. “I once asked my father, ‘When is the best time to invest
money?’” he reflects. “Dad answered, ‘Son, the best time to invest
money is when you have it.’ He told me to just make it a habit, like
eating and sleeping, and to invest every week. He insisted that if you
invest for a lifetime, you will become rich.” Nevertheless, Davis offers
the following prediction: The Dow Jones Industrial Average will be
trading at around 50,000 by the year 2030. “So if you have 30 or 40
years to invest, why worry about the next 1,000 or 2,000 points?”
Davis asks.
Why worry indeed. If you need more proof that market timing is
for the clueless, just look at the track record of those who have tried
to do it over the years. Almost every mutual fund, investment newsletter,
and adviser claiming to practice market timing has a performance
record not even a mother could love. There are many reasons
for this. For one thing, the market has an upward bias, meaning it
goes up a lot more than it goes down. Therefore, by being out of the
market, you are more likely to lose out on potential gains than you
are to avoid any steep losses. Second, the market tends to move widely
in both directions on only a select number of days. Therefore, if you’re
out during the few most profitable sessions of the year, your overall
returns will plummet.
One often-cited study shows that from 1980 to 1990, the annual
return on stocks in the Standard & Poor’s 500 index was 17.6 percent.
During that period, if you were on the sidelines during the top ten
trading days, your return would have dropped to 12.6 percent. Had
you been in cash on the 20 best days, your increase would have been
a mere 9.3 percent. If you were unfortunate enough as to miss the 30
best sessions, out of a potential 3,650, your return would have been
cut by almost a third, to 6.5 percent.
Sure, sometimes these market forecasters will be right. Several
correctly called for a fall in 1987, then harped on continuously about
the accuracy of their prediction. However, many of these same folks
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