“It is far from certain that the typical investor should regularly hold off buying until low market levels appear, because this may involve a long wait, very likely the loss of income, and the possible missing of investment opportunities. On the whole it may be better for the investor to do his stock buying whenever he has money to put in stocks, except when the general market level is much higher than can be justified by well established standards of value.” – The Intelligent Investor
“You Shall Not Pass.” This was famously used in J.R.R. Tolkien’s The Fellowship of the Ring, the first volume of The Lord of the Rings. In the novel as well as in the movie based on it, the wizard Gandalf declares staunchly, “You shall not pass!” while blocking the Balrog (a demonic creature).
Though most people keep talking of markets in terms of either bull (rising) or bear (falling) markets, markets generally have a significant amount of time when they are basically stuck and going nowhere.
Most business channel anchors use the term “range-bound” so often for such market states. It is so uninteresting to them to wake up every day in the morning, cover the hectic activity minute to minute, and finally it all ends up being ‘range-bound’ activity with ‘stock-specific’ action.
Event after event are created by the business media – from seemingly important ones like release of inflation numbers, quarterly results, industrial numbers, credit policy, European crisis, oil prices, Chinese slowdown to tactical issues like expiry of the monthly series, daily volume turnovers and technical indicators. But for long periods of time, the net result for the market turns out to be essentially status quo. The end of every event makes everyone look forward to the next one – but the market again says – You shall not pass – I stay where I am – ‘range-bound’.
For an individual investor, perhaps neglecting all the action (or net inaction if you may say so) continues to be the best strategy. Lethargy bordering on sloth remains the best policy.
The formula remains the same – fix your long term asset allocation, select and regularly keep adding to those assets, and rebalance once in a while when there are major moves. To everything else that tries to distract you from this path, neglect it with boredom. And with determination – the response should be – You shall not pass.