The old gentleman looked as though he could not be budged from his stakeout at the buffet table. But after we had shared our mutual enthusiasm for edible party treats and he found out I was a business writer, he licked his fingers and followed me away, brimming with questions. Did I have any investing advice for him? Any hot stock tips? How could he get the better of the market?
I sighed and gave him my standard response: those who can, do; the rest of us just write about it. Undeterred, he regaled me with his adventures. He had sold his stocks in disgust after the Asian financial crisis, then bought in again just before the fall downturn. He had focused on tech stocks, aiming to buy in at the bottom and sell at the top. But he seemed to be upside-down, and his stock picks defied his view of gravity. What was he doing wrong?
That one I could answer: he had been trying to time the market, playing stocks like horses. Sure, there are people out there who can do this and get away with it, I admitted. But for them it’s a full-time job and more, and they hedge their bets in all kinds of fancy ways to balance the risks. And that’s easier said than done.
Index funds, I prescribed for him. Diversified baskets of stocks that should appreciably rise with the market over the long term.
Several months down the line, the next time I met my old gentleman over a heaving buffet table, he was eager to inform me that he had followed my advice and gone into index funds. And his system really seemed to be working: he bought index funds each time he thought that the market was going up, and then sold them at the top…
‘How’s the roast beef?’ I inquired, resolving once again never to try and give investment advice.
