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Why is timing the market perfectly nearly impossible?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 590.1 million views in recent years.

In the answers below I focused on the following topics and issues:

  • What is the most “powerful” business quote for you?
  • Why is timing the market perfectly nearly impossible?
  • Who do you believe is right about the French pension protests: Macron or the unions? Why?
  • What is your big plan for investing in a stagflation environment? Are commodities (food), and metals the best?
  • As an expat, is it a good idea to invest in property in Abu Dhabi?
  • How do NRIs invest in mutual funds from overseas?

If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me, email (advice@adamfayed.com) or use the WhatsApp function below.

Some of the links and videos referred to might only be available on the original answers.

What is the most “powerful” business quote for you?

The below quotes aren’t always seen as typical business quotes.

They are more general quotes.

Here are three.

  1. Brilliant but cheesy scene from an old movie.

“First you get the money, then the power, then the woman”.

This is true (metaphorically) in business too.

2. Today’s scandal is tomorrow’s fish and chip papers.

And no, social media hasn’t changed this truth in the same way that there is no such thing as bad publicity can still be just as true today as in 1995.

3. When you’re 20 you care what everyone thinks, when you’re 40 you stop caring what everyone thinks, when you’re 60 you realize no one was ever thinking about you in the first place.

There are many business quotes which are true and more powerful.

However , the above things are relevant for business and life and aren’t politically correct or socially acceptable per see so fewer people mention them or realise the relevance early in their business career.

The point is, people overthink business and sometimes take themselves (and others) too seriously, especially when thinking about short-term things which come and go.

Why is timing the market perfectly nearly impossible?

It isn’t nearly impossible once, or even twice.

Over a 20-year period, it is very difficult.

Look at this graph:

main qimg 94eb79a6009353f3b884a7d11bb471e7

Perfect timing would have been more profitable, but getting it right, even every time, wasn’t that much more profitable than investing right away.

That is because you have dividneds to reinvest if you invest right away and:

  • Stock markets do tend to increase over time. So, it isn’t the same thing as trying to time a market which is volatile and struggles over time, like commodities, which also don’t pay dividends.
  • Just one awful move can wipe out loads of correct moves. To get market timing right, you need to do two things – get the timing right consistently and avoid even one terrible move. For example, let’s say somebody got 100% of market moves from from 1950 until 2007. This is unlikely, but imagine this happened. This person then sells out before the 20097 crash as well. In 2009, the Dow is at 7,000–10,000 for most of the year, but this person decides to stay in cash (a disastrous decision). That person would probably now have less money, due to this one awful move, even if they got all the other decisions right.
  • Markets aren’t always efficient, but they aren’t stupid either. If it was so obvious that markets were going to go down, then why wouldn’t everybody be able to profit consistently?
  • We all have to indirectly market time to a certain extent. Most of us have salaries of business earnings so hardly anybody has one big lump sum and nothing else to invest. Therefore, most of us can take advantage of falling markets anyway with additional contributions, without needing to hold back loads of cash.

That doesn’t mean that you need to be 100% in the stock market forever.

Of course, diversification of assets can make sense, but that is different to market timing.

Who do you believe is right about the French pension protests: Macron or the unions? Why?

It isn’t about who is right or wrong.

It is about what is affordable.

All over Europe pensions were set up after World War Two when people lived for less time, economic growth was higher and populations were increasing.

Now people are living for longer, populations are ageing and growth is lower.

In 1945, governments assumed they would only need to fund a 5–10 year retirement.

Now it is closer to 20–30 years due to increased life expectancy:

main qimg 61c515a76710bcb19004f96d63df6608

The whole system isn’t sustainable and feels like a Ponzi scheme where new people (immigrants and children) need to prop up the existing system.

Slight changes like higher taxes won’t work long-term.

Therefore, higher retirement ages or lower benefits will be the only way governments will go.

I have sympathy for those who are angry that benefits are being cut, but don’t see a workable alternative.

Increasingly, people in more countries will see the need to take care of their own retirement.

Whatever your position on things like this, the state clearly can’t be trusted to keep to their old promises – and that is not just a French issue.

The age old expression not to put all your eggs in one basket, including the state, could never be more true than now.

What is your big plan for investing in a stagflation environment? Are commodities (food), and metals the best?

The problem with inflationary environments is they tend to come and go.

In 2007, oil hit $147, which is over $200 in today’s money.

Here is Jim Rogers predicting $200 a barrel for oil in 2007.

Many agreed with him.

Therefore, plenty of people wanted to invest for inflation, then the Global Financial Crisis happened and there was deflation or 0% in many countries for a short period of time.

Oil and metals dropped dramatically.

Come 2010-2011, and the global economy started to recover.

Oil went from $30-$40 to over $100 after the Libya war.

Many people were predicting gold at $5000, the decline of the USD, emerging market currencies and stockmarkets to skyrocket etc.

Sounds familiar!

It never happened.

Inflation was muted, in most advanced countries, until last year.

Most people who predicted the slight rise in inflation in 2010, got the subsequent muted inflation wrong.

Now we don’t know if inflation this time will set in.

What we do know is:

– It is falling in most developed nations. At least the headline rate is.

– As inflation is measured year-on-year, by December it is likely to fall again.

– The economy is weak in many countries. Unless the economy gets stronger, inflation rate rises is likely to be depressed

– There are risks for inflation to remain above 2% for a while, even if they don’t stay at 8%-10%.

Historically, assets like oil and gold have done reasonably well during inflationary periods, but not great over the long-term.

So, unless you can time inflation, and when it will come and go, which nobody seems to be able to do, I would just be diversified.

In many emerging markets like Turkey and Ghana, inflation is likely to persist.

In that case, international assets and diversification is even more vital.

As an expat, is it a good idea to invest in property in Abu Dhabi?

It depends what you are trying to achieve.

The UAE is attracting in more high-net-worth individuals, and with good reason.

Dubai and Abu Dhabi are great places to live for wealthier people.

Some of those people are going down the golden visa route, including via property.

In that case, it can make sense, because you can save on taxes.

Having said that, it still makes sense to live in a country for a while before buying.

Rental yields in the UAE are also very good, so buying can be cheaper than renting.

Where investors tend to get their fingers burned is rental properties.

The UAE market has been very volatile for a decade and a half – huge upswings and then crashes.

I know several people who lost money on 2010-2011 purchases, even though they held for over a decade.

Therefore, I would compare different markets around the world, before buying in a specific country.

How do NRIs invest in mutual funds from overseas?

The process is the same as with other nationalities.

The basic steps are:

  1. Find an investment platform or advisor who can accept you for where you live
  2. Produce the needed documents which are usually:
  • An application form
  • Proof of ID
  • Proof of address dated in the last three months
  • Sometimes source of wealth documents for larger accounts

3. Fund the account and trade

Make sure the account is portable when, and if, you move

Just avoid certain things, like “home country bias”, where investors focus too much on their home countries stock market

main qimg c534448f26ea74f1f3361699020c47b5

I have put a guide, below, into how to invest as an NRI into the Indian stock market, but that doesn’t mean most of your portfolio should go there.

I would also avoid investing too much in your country of residency as well.

Many people go to a new country and see great local opportunities, such as local businesses, land and houses.

Sometimes this can be a good idea, but the risks outside our own country are high in illiquid assets.

What is more, as an expat, you most likely don’t know where you will settle down.

That is a great reason to be globally diversified into a portable portfolio.

Pained by financial indecision? Want to invest with Adam?

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Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.

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