Choosing the best time to buy and sell individual stocks is extremely difficult even for professional money managers who struggle to outperform the stock market as a whole. Everyday investors have even fewer tools to identify the right time to buy or sell.
“Just because some of these names have been in your portfolio, don’t kid yourself that they will be in the future, because you will be disappointed,” said Barton Malkiel, chairman of Chemical Bank. Professor (Economics) said. For generations, Princeton University has urged investors to focus on boring, passive investing instead of flashy stock picking. “You can never get it right, no one can get it right.”
Case in point: Tesla was the market darling until last year. Many Wall Street analysts touted the film as the best artificial intelligence drama due to its focus on self-driving cars. But if you bought Tesla stock a year ago, your investment would actually be about $14. % less than what you paid.
On the other hand, if you had bought an index fund that tracks the S&P 500, a collection of blue-chip U.S. stocks, you would have gained more than 28%. It may not be as exciting as riding along with Elon Musk, but it’s still a great return.
The same could be true for Nvidia, which is currently a fast-growing stock due to optimism about the impact its products will have on artificial intelligence. The value of the company’s shares has more than tripled over the past year. This is a great result for early investors who are now looking to sell the stock at that high price.
Malkiel said: “Nvidia will probably stumble. We never know if Nvidia is right, or Amazon or Microsoft is right, or how big AI will become.”
In other words, markets are unpredictable and cannot be timed with certainty. This is an original idea proposed by Malkiel in his book “Random Walk Down Wall Street”. First published in 1973, it has sold over 2 million copies. He has taught economics at Princeton University and Yale University, and although he may no longer work 20-hour days at age 91, he still serves on several investment committees and is a DIY advisor in San Francisco. He is the head of investment at the company Wealthfront.
The Boston native recommends investing the majority of your savings in low-cost total market index funds. “That’s the beauty of buying index funds. You get to participate in all the stocks that are working.”
That’s how he invested his money. He grew up in a “row house” in Roxbury and never received a penny. He attended Boston Latin School, Harvard University, and Harvard Business School. He then earned a PhD in economics from Princeton University.
Mr. Malkiel is an avid supporter of index investing, which his friend Jack Bogle, the founder of Vanguard Group, pioneered in the 1970s.
If you really think you know more than the millions of investors whose funds determine the going price of the stock market, Mr. All financial advisors similarly advise against betting more than you are comfortable with on any individual investment. lose.
The overall stock market has been producing a 10% return for over 100 years. This means he can double his money every 7.2 years, thanks to the so-called Rule of 72, which Malkiel claims is the best little math lesson ever.
“A fundamental lesson in finance is that even if your return on funds is modest, if you keep investing, that modest return can turn into something very large,” Malkiel said. Told. “Time is of the essence, so just to be safe, start as soon as possible.”
Suchita Nayar can be reached at suchita.nayar@globe.com.
