Every day, it seems someone has a new model that claims to predict the next stock market meltdown or boom. Two of my colleagues, Mark Lewis and Sarah DerGarabedian, and I had a stock market theory we tested a couple of years ago. We called it the “SDG Market Indicator.”
At the time, Sarah’s almost one-year-old son was having some difficulties sleeping through the night. Whenever she did not get a good night’s sleep, we noticed on most of those days the stock market dropped. Over a 48-day period, we compared her sleep cycle against the market’s performance. If she slept well the night before, the market increased 42 percent of the time. The market was either flat or declined 58 percent of the time when she had an average to bad night’s rest.
You are probably saying to yourself, “This is the stupidest thing I have ever heard.” You are right. Some people accept far-fetched theories like the SDG Market Indicator as sound market guidance, though. As they chase the next theory’s prediction, they risk losing more than they could potentially gain.
Market timing statistically does not work. A study by Morningstar highlights the dangers of market timing. This study shows that, during the period 1926 – 2009, an investor who invested $1 in stocks would now have $2,592. The study also shows that if that investor missed the 37 best months during this time frame, but was otherwise invested in stocks, the investment would only be worth $19.66 at the end of 2009.
At Parsec, we prefer to take the long-term view when evaluating the market. It is impossible to predict on a day-to-day basis what the market will do. However, as studies have shown, the market will eventually recover from declines. It is all part of the cyclical nature of financial markets.
The next time you see a hot new theory, just think of the SDG Market Indicator. Now, I am off to force feed Sarah a turkey sandwich and slip an Ambien in her tea. It is time for a few positive days in the market.
Cristy Freeman, AAMS
Senior Operations Associate