What Does The Zen Master Say About Market Timing?

crispydoc Uncategorized 3 Comments

Lately there’s a lot of talk among newbies on the Physicians On Fire facebook group about how they are tempted to practice market timing: hold onto their cash and strategically wait for a market downturn to invest on the dip. Given the famously poor relationship we docs have with our money, it’s evocative of the famous quote attributed to investor and Camelot family patriarch Joe Kennedy: “You know it’s time to sell when shoeshine boys give you stock tips.”

Yet the secret to successful investing is resisting these very impulses. Since I’m feeling particularly avuncular (in the style of your uncle who kept sending you Wall Street Journal clippings in the mail during college), allow me to offer one additional Hollywood-adapted parable.

In the film Charlie Wilson’s War, the late Philip Seymour Hoffman plays a memorable US intelligence agent and relates an illuminating tale that I find instructive to investors tempted to try to time the market after enjoying a long bull market, but feeling skittish about the recent high CAPE ratio.

There’s a little boy and on his 14th birthday he gets a horse… and everybody in the village says, “How wonderful. The boy got a horse!”

And the Zen master says, “We’ll see.”

Two years later, the boy falls off the horse, breaks his leg, and everyone in the village says, “How terrible.”

And the Zen master says, “We’ll see.”

Then, a war breaks out and all the young men have to go off and fight… except the boy can’t cause his leg’s all messed up, and everybody in the village says, “How wonderful.”

Now the Zen master says, “We’ll see.”

As an investor, you need to be more Zen master and less villager. Keep investing and stay the course instead of trying to time the market. It takes a long time horizon to reap the ultimate benefits of a sound investing plan.

Comments 3

  1. I’m reading a book by John Bogel and he breaks the market down to 2 categories, investment and speculation. Investment is buying companies and becoming owners in America. As the country grows your investment grows. Speculation is the short term zero sum price arbitrage between traders. Investors capitalize on the fact that people go to work and add value to some raw material which can be sold for a profit. Speculators generate taxes. The way you trade this is buy 50% stocks and 50% bonds. Add new money such that you keep it 50:50. If one asset becomes greater then sell that and add it to the other till you’re back to 50:50. This will force you to buy low and sell high. In the end you’ll be rich as hell.

    1. Post

      Saint Jack is spot on, and rebalancing as you’ve outlined forces you to take advantage of discount buying opportunities, although a 50/50 asset allocation seems a bit conservative. Also, I’d settle for financially secure as hell.

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