Durable Dividends

Market Timing Is A Fool’s Errand

Nick Ward

56 postsMarch 10, 2022

One of the most common mistakes that I see investors make is selling their winners too early.

There’s a phrase in the markets that goes something like this, “Don’t cut your flowers and water your weeds.”

In other words, don’t cut winners just because they’ve risen. Historically speaking, blue chips tend to rise higher over time. And certainly don’t cut ties with wonderful companies that have performed well to reallocate those resources towards lower quality, poor performers. If you do that, what could have been a portfolio reminiscent of a beautiful garden will eventually turn into a barren lot full of weeds.

Far too often, I see investors get excited about making a quick buck on an investment, take profits, and laugh their way to the bank…but unfortunately, this laughter tends to turn into disappointment and regret over time.

Why is that?

Well, more often than not, best-in-breed stocks use their strong competitive advantages and the immense talent and resources that they’ve garnered over the years to generate reliable fundamental growth moving forward.

And, in the dividend growth side of the market, that reliable fundamental growth (we’re talking sales, cash flows, net income, and earnings-per-share) ultimately translates directly into reliably increasing passive income.

Therefore, while it’s great to lock in unexpectedly high profits in the short-term, I’ve noticed a fairly common trend amongst investors who like to do so…

It generally doesn’t take long for the elation of these individuals’ experience to wear off and eventually, they’re left wondering “What could have been?” as they watch the stocks that they’ve parted ways with head ever higher.

Now, when typing that first sentence, I originally wrote, “One of the biggest mistakes”…

But then I quickly back tracked because the fact of the matter is, the famous Wall Street quote, “No one ever went broke taking a profit” rings true.

There are certainly far worse mistakes that investors could make than making money with their trades.

However, I firmly believe that focusing too much attention on short-term share price movements and allowing emotions to drive decision making (instead of fundamental growth trends, trajectories, and guidance figures) is a practice that is going to result in missed opportunities, poor long-term results and ultimately, regret.

I often tell people, you’ll never experience a 10-bagger in the market if you sell shares every time something doubles.

Sometimes people aren’t even that patient, locking in gains when they reach 10%, 20%, 50%, etc.

But, to me, these short-term gains should not be the goal of an investor who is thinking about financial freedom over the long-term.

Yes, it’s possible to compound money by making successful trades over and over again, but there’s a lot of risk when trying to do so.

First of all, there are tax consequences to consider and how making payments to the IRS can erode away gains.

More importantly, frequent trading involves quite a bit of market timing and as I’ve said many times before, no one has a working crystal ball.

Very few people have ever made fortunes attempting to predict macro outcomes in the market. Yes, there are famous investors who perfectly timed the tops and bottoms of boom and bust cycles, but for everyone who has become famous for a noteworthy call like that, there are countless individuals who tend to be wrong.

And, it’s not their fault.

Frankly, there are just too many variables at play at any given one point in time for a human, or even an algorithm with super-human computing power, to predict the future accurately. And, the further and further away we attempt to look into the future, the murkier things become.

So, instead of trying to time the market (which, I wholeheartedly believe to be a fool’s errand) I believe that investors are best off simply buying and holding (owning) shares of the best companies in the world, collecting their dividends, re-investing them, and allowing that compounding process to slowly, but surely, make them rich.

Not only has this method prove to be a very reliable way of generating wealth over long periods of time, but it can also reduce stress and allow investors to better enjoy their lives, because a disciplined buy and hold investing strategy allows investors to ignore the oftentimes irrational (and therefore, frustrating) short-term volatility in the markets.

One I buy shares of a company, I don’t pay very much attention to what it’s share price is doing.

My goals don’t revolve around locking in gains, but instead, collecting reliably increasing income.

Therefore, instead of paying close attention to share price, I’m laser focused on the fundamentals that each company that I own produces…with special attention being paid to dividend safety related metrics.

So long as I believe that a company’s dividend is safe and so long as its management team continues to reward my discipline/patience with acceptable annual dividend raises moving forward, I’m nearly always content to simply sit back and collect my passive income payments.

To me, generating wealth doesn’t have to be any more complicated than that.

Is this strategy exciting? Not really. But, I’m not in the market for an adrenaline rush. I actually prefer the slow, steady, and frankly, inevitable nature of the power of compound interest that I’m relying upon to reach financial freedom.

And, with that in mind, I wanted to highlight a study that I can across this week – inspired by a discussion that I had with members of The Dividend Kings (one of Wide Moat Research’s premium investing Marketplace Services at Seeking Alpha) – which revolved around a Bank of America study which put a spotlight on the importance of staying invested through thick and thin.

In 2020, Bank of America’s U.S. equity strategy team, led by Savita Subramanian, performed a study showing that relatively few days in an investors’ lifetime are likely to be responsible for their success in the market.

What I mean is…history shows that there are special moments that tend to make up substantial portions of bull market runs and investors who miss out on these rallies (because they’re too busy trying to be fancy and time markets) are likely to find themselves in a hole that they could never hope to dig out of.

With regard to her study, Subramanian said, “Market timing is difficult.”

She continued, “Since the 1930s, if an investor sat out the 10 best return days per decade, his/her returns would be just 17% compared to 16,166% returns since then.”

As a part of the study, using long-term S&P 500 data, Subramanian noted that an investors’ chances of losing money in the market diminish greatly the longer that they stay invested.

Her data showed that one a one day basis, someone’s chance of timing the market is essentially a coin flip (it’s slightly better than that because of the long-term uptrend that U.S. equity markets have been on during the last 100 years, which also factors strongly into my opinion that buy and hold investing is the best path to take).

However, as you can see below, as time moves on, one’s chance of experiencing losses declines precipitously.

Source: Yahoo Finance

In short, I highly doubt that there’s a better chart out there which points to why I sleep so well at night as a long-term, buy and hold investor.

The BofA team has updated this study since originally publishing it and In March of 2021, Pippa Stevens, a CNBC contributor, wrote an article using the updated findings.

Source: CNBC

Using the new data, Stevens said, “Looking at data going back to 1930, the firm found that if an investor missed the S&P 500′s 10 best days each decade, the total return would stand at 28%. If, on the other hand, the investor held steady through the ups and downs, the return would have been 17,715%.”

That’s pretty amazing, isn’t it?

Sure…looking at the chart above, it’s also clear that if an investor had somehow managed to miss all of the worst trading days that each decade experienced, then yes, their returns would be even more astronomical. However, being that the most significant market crashes are generally caused by black swan events (which, by their very nature, are unpredictable) it would have been an absolutely impossible feat to do that.

Therefore, I don’t think paying attention to that aspect of the study is worthwhile.

Instead, I think it’s important to focus on the fact that allowing fear (of potential losses) to inspire us to lock in profits in the short-term is a perfect example of missing the forest for the trees.

Sure, those profits are great, but not nearly as great as the risk involved with missing out on the relatively rare make or break rallies which can truly change an investor’s fortune.

This article is intended to provide information to interested parties. As we have no knowledge of individual circumstances, goals and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended. It does not guarantee that securities mentioned in this newsletter will produce profits or that they will equal past performance. Additionally, we are not an investment advisor and do not offer securities or tax advice. Although all content is derived from data believed to be reliable, accuracy cannot be guaranteed. Nicholas Ward, contributors and staff members of Wide Moat Research may hold positions in some or all of the stocks listed.

Nick Ward

56 posts

View all my Posts

Nicholas Ward is a research analyst who currently writes for Seeking Alpha, The Dividend Kings, iREIT, and Forbes Real Estate Investor. Before that, he was Founder and Editor-in-Chief of The Dividend Growth Club, as well as the Income Minded Millennial. Nicholas has also contributed to Sure Dividend, Investing Daily, and The Street, where he covered stocks in Jim Cramer's Action Alerts PLUS Portfolio.

Nicholas holds a bachelor of arts from The University of Virginia, where he studied English and studio art. Prior to transitioning into the financial industry, he managed a vineyard in the foothills of the Blue Ridge Mountains.

This Structure Was Built to Last

REIT Mutual Fund	Symbol
Alpine Realty Income and Growth Fund	AIGYX, AIAGX
American Century Real Estate Fund	REAIX, REACX, AREEX, AREWX, ARYCX, AREDX
Real Estate Securities Fund	MRESX
AR Capital Real Estate Income Fund	ARIAX, ARICX, ARIPX
AssetMark Real Estate Securities Fund	AFREX
Aston/Harrison Street Real Estate Fund	AARIX, ARFCX
Baron Real Estate Fund	BREIX, BREFX
BlackRock Real Estate Securities	BIREX, BAREX, BCREX
Brookfield U.S. Listed Real Estate Fund	BRUAX, BRUCX, BRUIX, BRUYX
CGM Realty Fund	CGMRX
West Loop Realty Fund	REIIX, REIAX, REICX
Cohen & Steers Institutional Realty Shares	CSRIX
Cohen & Steers Realty Income Fund	CSEIX, CSDIX, CSBIX, CSCIX
Cohen & Steers Realty Shares	CSRSX
Columbia Real Estate Equity Fund	CREAX, CREIX, CRRVX, CRERX, CREEX, CRRFX, CREWX, CRECX, CREBX
Compass EMP REC Enhanced Volatility Weighted Fund	CWRAX, CWRIX, CWRTX, CWRCX
Davis Real Estate Fund	RPFRX, DREYX, DRECX, DREBX
Delaware Real Estate Investment Trust Portfolio II	DPRTX, DPRBX
Delaware Real Estate Investment Trust Portfolio	DPREX, DPRSX, DPRRX, DPRCX
DFA Real Estate Securities Portfolio	DFREX
Dunham Real Estate Stock Fund	DAREX, DNREX, DCREX
DWS RREEF Real Estate Securities Fund	RRRRX, RRREX, RRRAX, RRRSX, RRRBX, RRRCX
DWS RREEF Real Estate Securities Income Fund	REFAX, REFCX, REFIX, REFSX
Eaton Vance Real Estate Fund	EAREX, EIREX
EII Realty Securities Fund	EIIRX
Fidelity Advisor Real Estate Fund	FHEIX, FHEAX, FHETX, FHECX, FHEBX
Fidelity Advisor Real Estate Income Fund	FRIRX, FRIQX, FRINX, FRIOX
Fidelity Real Estate Income Fund	FRIFX
Fidelity Real Estate Investment Portfolio	FRESX
Fidelity Spartan Real Estate Index Fund	FSRNX, FRXIX, FSRVX
Fidelity Series Real Estate Equity Fund	FREDX, FREFX
Fidelity Series Real Estate Income Fund	FSREX, FSRWX
Forward Real Estate Long/Short Fund	KSRYX, FRLSX, FFSRX, KSRAX, KSRCX, KSRBX
Forward Real Estate Fund	FPREX, FFREX, KREAX, KRECX
Forward Select Income Fund	KIFYX, FSIMX, FFSLX, KIFAX, KIFBX, KIFCX
Franklin Real Estate Securities Fund	FREEX, FRLAX, FRRSX, FSERX
GMO Real Estate Fund	GMORX
Goldman Sachs Real Estate Securities Fund	GREIX, GRETX, GREAX, GRESX, GRERX, GREBX, GRECX
Great-West Real Estate Fund	MXREX
Heitman REIT Fund	OARTX, OBRTX
ING Real Estate Fund	CRARX, IREWX, IDROX, CLARX, CRWRX, CRCRX, CRBCX
INVESCO Real Estate Fund	REINX, IARFX, IARIX, IARYX, IARAX, IARRX, IARCX, AARBX
Ivy Real Estate Securities Fund	IRSAX, IREIX, IRSYX, IRSRX, IREEX, IRSCX, IRSBX
John Hancock Real Estate Securities Fund	JIREX
Johnson Realty Fund	JRLTX
J.P.Morgan Realty Income Fund	URTLX, JRIRX, URTAX, URTBX, URTCX
J.P. Morgan Security Capital U.S. Core Real Estate Securities Fund	CEEAX, CEERX, CEEFX, CEESX, CEECX
J.P. Morgan U.S. Real Estate Fund	SUSIX
Lazard U.S. Realty Equity Portfolio	LREIX, LREOX
Lazard U.S. Realty Income Portfolio	LRIIX, LRIOX
Manning & Napier Real Estate Series	MNRIX, MNREX
Morgan Stanley Institutional U.S. Real Estate Portfolio	MSUSX, MUSDX, MSULX, MURSX
Natixis AEW Real Estate Fund	NRFAX, NRFYX, NRFBX, NRFCX, NRFNX
Neuberger Berman Real Estate Fund	NBRIX, NBRFX, NREAX, NRERX, NRECX, NRREX
Nuveen Real Estate Securities Fund	FREAX, FARCX, FRSSX, FREBX, FRLCX, FREGX
Oppenheimer Real Estate Fund	OREAX, OREIX, OREYX, ORENX, OREBX, ORECX
PHOCAS Real Estate Fund	PHREX
PIMCO RealEstateRealReturn Strategy Fund	PRRSX, PETPX, PETAX, PETDX, PETCX, PETBX
Pioneer Real Estate Shares	PWREX, PYREX, PCREX, PBREX
Principal Real Estate Securities Fund	PIREX, PIRPX, PREPX, PRETX, PREJX, PRRAX, PRERX, PRENX, PRAEX, PRCEX, PRLEX
ProFunds Real Estate UltraSector ProFund	REPIX
Prudential Select Real Estate Fund	SREAX
Prudential U.S. Real Estate Fund	PJEAX, PJEZX, PJECX, PJEBX
REMS Real Estate Income 50/50 Portfolio	RREIX
REMS Real Estate Value-Opportunity Fund	HLRRX, HLPPX
Rydex Real Estate Fund	RYREX, RYHRX, RYCRX
SA Real Estate Securities Fund	SAREX
SEI Institutional Mgd Real Estate Fund	SETAX, SEIRX
Spirit of America Real Estate Income & Growth Fund	SOAAX
SSgA Clarion Real Estate Fund	SSREX
Stratton Real Estate Fund	STMDX
T.Rowe Price Real Estate Fund	TRREX, PAREX
TIAA-CREF Real Estate Securities Fund	TIREX, TRRPX, TRRSX, TCREX
Vanguard REIT Index Fund	VGSNX, VGRSX, VGSLX, VGSIX
Virtus Real Estate Securities Fund	PHRAX, PHRIX, PHRCX, PHRBX

REIT ETF	Symbol
Flex Shares	ASET
Wisdom Tree Global Ex-US	DRW
S&P 500 Equal Weight	EWRE
iShares FTSE Industrial/Office	FNIO
MSCI Real Estate Index	FREL
S&P REIT Index	FRI
First Trust S&P REIT	FRI
iShares Real Estate 50	FTY
Flexshares Global	GQRE
iShares Cohen & Streers	ICF
iShares International Developed RE	IFGL
iShares US RE	IYR
Premium Yield Equity REIT	KBWY
ETRACS Monthly Pay 2x Leverage	MORL
Market Vector Mortgage	MORT
iShares Global REIT	REET
iShares FTSE Mortgage	REM
iShares Residential	REZ
IQ US Real Estate Small Cap	ROOF
iShares FTSE NAREIT Retail	RTL
DOW Jones Global RE	RWO
SPDR Dow Jones	RWR
Schwab US REIT	SCHH
Super Dividend REIT	SRET
ProShares Ultra RE	URE
Vanguard REIT	VNQ
Vanguard Global ex-US	VNQI
iShares International Developed	WPS
Wilshire US REIT	WREI
Pacer Benchmark Data & Infrastructure RE	SRVR
Pacer Benchmark Industrial RE	INDS
Pacer Benchmark Retail RE	RTL
Hoya Capital Housing	HOMZ
NetLease Corporate RE	NETL

REIT Name	Ticker	Annual Increases/yr
Federal Realty	FRT	51
Universal Health Realty	UHT	33
National Retail Properties	NNN	29
Realty Income	O	27
Tanger Outlets	SKT	26
Urstadt Biddle	UBA	25
Essex Property Trust	ESS	25
W.P.Carey	WPC	22
National Health Investors	NHI	17
Equity Lifestyle	ELS	15
Digital Realty	DLR	15

Market Timing Is A Fool’s Errand

Nick Ward

56 postsMarch 10, 2022

Featured Articles

The Great Housing Market Migration Is VERY Interesting

Let Dividends Help You Deal With Disappointment In The Stock Market

Amazon Wants to Ask What Ails You

Wall Street’s Workforce Crisis Should Be Taken Seriously

Santa Claus Has Left the Building

Market Timing Is A Fool’s Errand

56 postsMarch 10, 2022

REIT Mutual Funds

REIT ETFs

Not All Dividends Are the Same