Investing: Wait For It...? : The Indicator from Planet Money Personal finance specialist, author and former trader Jill Schlesinger explains market timing--that is, trying to figure out when to buy and sell stock--and why it's a fool's errand.

Investing: Wait For It...?

  • Download
  • <iframe src="https://www.npr.org/player/embed/696633713/696675628" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

STACEY VANEK SMITH, HOST:

This is THE INDICATOR FROM PLANET MONEY. I'm Stacey Vanek Smith. So the thing about working for a business and economic show is that you get asked personal finance questions all the time. Like, people are always coming up to me and asking, like, should I max out my 401(k) or pay off my credit card first? Should I buy or rent? Is now a good time for me to get into the markets? And, you know, I never know what to say because the truth is I don't know.

However, I do know people who know - one of them is Jill Schlesinger. She's a business analyst for CBS News and a certified financial planner. Jill Schlesinger, welcome. Also, I should say that you have just written a book called "The Dumb Things Smart People Do With Their Money." Jill Schlesinger, new book.

JILL SCHLESINGER: It is so exciting.

VANEK SMITH: Yes, it is. And, in fact, Jill, one of the things that you address in this book is one of the questions we get most often at THE INDICATOR. And it is a question about when to invest and what to invest in. Questions like, you know, the market's going up, should I wait until it's falling? Or, you know, what do you think about Apple - buy, sell, hold? I mean, this is something people come to you for advice. They want to invest.

SCHLESINGER: Yeah. This is one of my favorite things.

VANEK SMITH: Today on the show, timing the market. When should you invest in stocks? What stocks should you invest in? And if you have spent years putting your money into a savings account instead of investing it in the market, how bad is that?

(SOUNDBITE OF MUSIC)

VANEK SMITH: Today we are talking to Jill Schlesinger, author of "Dumb Things Smart People Do With Their Money," about one of the dumb things a lot of smart people apparently do with their money. It is also a question we get a lot here at THE INDICATOR - namely, timing the market.

So basically this is just trying to figure out what the stock market's going to do. For instance, is the stock market going to go up? So you should go buy a bunch of stocks right away. Or, you know, is the market going to go down? So you should sell a bunch of stocks. So, Jill, timing the markets.

SCHLESINGER: First of all, there is this classic smart person mistake which goes something like this. I am really smart. If I put a lot of time and energy and focus on researching something, I will yield better results than the schlub down the hall for me who's throwing darts, right? That's really the classic smart person mistake.

VANEK SMITH: I'm good at homework. I'll do homework.

SCHLESINGER: Exactly. I know how to perform. That is, like, so spot-on. So the problem is that, first of all, investing is not just about homework, it is emotional. Market timing - classic example. So here's what market timing is generally. As we speak today on this - in this moment, the stock market went down at the end of December and rallied in January and continued to rally in February. And now people are writing in and saying to me, well, I was going to invest my tax refund in my Roth IRA, but I think I'll wait.

VANEK SMITH: Because the market's going up.

SCHLESINGER: Right.

VANEK SMITH: Yes. Well, yeah. You don't want to - like, what if the market falls again next month and then you're - it's like when you buy a sweater and you walk by the store three days later and the sweater has been marked down 60 percent and you feel...

SCHLESINGER: Like a jerk.

VANEK SMITH: Like a jerk.

SCHLESINGER: Right. And so people don't want to make that jerky decision. Like, that's fine for the dumb people, but I'm smart, of course. And now I'm here to tell you that my own dumb thing was trying to time the market. And it is a classic - and, by the way, it's a classic trader's mistake also, that they're - the reason why I could make money as a trader in the late '80s on the floor the commodities exchange trading...

VANEK SMITH: That is so awesome. Were there any other women there?

SCHLESINGER: Eight women, 800 men.

VANEK SMITH: Really?

SCHLESINGER: Yeah. It was great.

VANEK SMITH: (Laughter).

SCHLESINGER: It was fun.

VANEK SMITH: I feel like you could hold your own, but was it fun or was it difficult to be...

SCHLESINGER: It was not fun in the moment. It was a fun place to have worked. There is one - one of the classic scenes of my life is that I walked home - my sister and I lived in the same apartment building at the time. And I came home - we used to have dinner all the time together. And so I walked in. And she goes, ugh, you wear your trading jacket home. It's disgusting. What - you got ink all over you. And I said, oh, oh, that's not ink. It's blood. And she said, blood? It's all over your jacket. What happened to you?

I said, oh, these two guys were in the upper ring, and they got into a fight, and one guy head-butt another guy. Blood splattered all over me. So I turned around, and I said, Nicky (ph), are you OK? And then someone said, a half bid for a hundred. I turned my back and I screamed, sold, across the ring.

VANEK SMITH: Sure.

SCHLESINGER: I don't even know what happened to those two guys. They could have died, for all I know.

VANEK SMITH: (Laughter) From blood loss.

SCHLESINGER: All right. Let's get back to market timing.

VANEK SMITH: Yes, market timing. But it was your job as a trader to do market timing.

SCHLESINGER: Absolutely. So I really learned about money and emotions.

VANEK SMITH: Yeah.

SCHLESINGER: One of the reasons that you make a lot of money in that day and age in - on a trading floor is that someone would say, you know, what is the price of this thing? And at...

VANEK SMITH: Like wheat or something.

SCHLESINGER: Right. Right. You say silver, you know. I will buy it at 10 cents. I would sell it at 15 cents. And you could literally have someone say, buy them and sell them. They could basically have both sides of the transaction happen simultaneously, and you make that nickel in the moment. That's how you make money as a trader. You grab nickels. And the problem that is market timing is you have to make two brilliant decisions. You have to decide when to sell and then when to buy back in, or conversely, the other way around, right?

So when I was an investment adviser, I used to write a column. And I was very hyper about the technology boom of the 1990s. And at the end of the boom, I wrote an article about how I was going to unload a lot of my technology stocks. And I thought that it was a dangerous market. And everyone thought I was a genius because guess what? The market fell out of bed in 2000.

The only problem is that I kept writing about how it's not time to get back in. You can't do it. You can't do it you can't do it. And someone very wisely at the end of 2002 wrote to me and said, you've missed the entire recovery of the market. It was 2003. You've missed the first year of this recovery. And I said, you know what? You're right. I had a huge egg on my face. It was a great lesson.

It is hard to time the market, and actually, it's not even a good - it's not even a good way to accumulate wealth because if you stick with your game plan, over time, you'll probably be just fine. But by trying to time when to get in and out, you could really hurt yourself. You could really blow up your financial plan. And so when people say, I just got my tax refund and I'm scared to put money into my Roth IRA - and you're 28 years old. I said, but wait a minute. You're investing for 30 years from now.

VANEK SMITH: What if you're 58 years old?

SCHLESINGER: If you're 58 years old and you're investing for the next, let's say, 10 years, you might say, I don't want to take as much risk. OK. You don't have to invest all in stocks. You could put some money in stocks and some money in bonds and some money in cash. But I would also say to you, if you're 58 years old and you're investing, think about this.

Let's say you plan to retire when you're 68. You're going to probably live 20 more years. You're not investing up until the day you retire. You are investing through your retirement. So the idea that you think you can time the market is nonsense, you're probably not. So you don't have to do it. And you know what? You don't even have to be a great investor to be hitting your retirement goals, your college savings goals - you really don't. What you have to do is be a disciplined saver.

And I just heard from a woman, she's is so funny. She said to me, I'm the worst. This is how she starts the call. I'm the worst. Tell me about that. She said, well, I'm a teacher in the South Bronx. And I've worked my whole life. And I have a pension. And I have some money in our school retirement account. And I just have tons of money in the bank. And I'm just the worst. Like, I'm - I said...

VANEK SMITH: Oh, she put it all in her savings account.

SCHLESINGER: Yeah. It's all in savings. She said, I'm the worst. I said, why is that the worst? I said, you know the hardest part of financial planning is saving.

VANEK SMITH: Right.

SCHLESINGER: And so yeah, I know, you wish you were more efficient and you would actually put money away, but you're in great shape, girl. You know, you got your pension coming up. You got some money in your deferred compensation plan. And you know what? You got 400 grand that's in the bank. You're not the worst. You're pretty damn good.

VANEK SMITH: Jill Schlesinger, author of "Dumb Things Smart People Do With Their Money," thank you. And we're going to have you back soon to answer more personal finance questions and, you know, hopefully hear some more bloody, awesome stories about the commodities markets. Jill Schlesinger, thank you.

SCHLESINGER: Thank you.

(SOUNDBITE OF MUSIC)

VANEK SMITH: Today's episode of THE INDICATOR was produced by Darius Rafieyan, edited by Paddy Hirsch. And THE INDICATOR is a production of NPR.

Copyright © 2019 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.