Waiting for the Bottom

I'm not sure if you have noticed (hopefully your attention has been elsewhere), but the market has waxed and waned over the past few weeks. July was the best-performing month in the markets since November 2020. However, the down 5%, down 5%, up 6%, and down 2% has been interesting, to say the least. When the market reaches new bottoms and then rallies off of said bottoms, the inevitable question becomes, was that THE bottom or will the market continue to trend downward? Given the extreme pessimism of investors, there are certainly some who believe these brief uptrends are temporary relief rallies on the way to new lows. But there are others who take the extreme pessimism as a contra-indicator that we must be nearing the bottom as pessimism can only go so far. Regardless of your stance on the issue, this debate is the focal point of a question I've recently heard from a few people (clients and non-clients alike) who appear to be waiting for the perfect entry point to put some cash to work. Is now the time, or should they wait a little longer? The desire to time the bottom perfectly is obviously logical. But there is an often-overlooked problem, and that is that bottoms are only evident in retrospect. By the time we know the bottom is official, the opportunity will have passed us by. This being the case, I think it's more helpful to think about what risks there are when putting lump sums to work at any time, of which there are two:

• The risk of losing money.

• The risk of missing opportunity.

The historical record is pretty clear that the risk of losing money has exclusively been a short-term phenomenon. It may fall further, but the cure for this risk has always been time. On the contrary, the risk of missing opportunity is a permanent risk. It's permanent because the prices we're currently seeing are likely to be prices we will never see again at some point. Think about it; we'd all love the opportunity to invest today at levels from previous bear market lows, but few people felt that way in the midst of the lows at the time. Are we to believe we won't feel the same way about this one given enough time? I think that's rhetorical. That said, I believe the constant search for the bottom misses the point of what we're trying to accomplish as investors. That is to make a series of good purchases over our lifetime, not a single perfect trade. We can only make decisions based on what we know right now. That is that prices are significantly lower than they were at the start of the year—even after a recent rally. Given these lower prices, it's quite reasonable to assume that this will be regarded as a good (great?) time to invest a lump sum even if it proves not to have been the absolute best time. It seems to me that the potential short-term risk of being slightly early is preferred to the long-term risk of being late. We don't know what will happen next, but the saying, "A bird in the hand is worth two in the bush." feels applicable here. If you find yourself still on the fence, consider this question, "If not now, when?" To be clear, nailing the bottom is much more a matter of luck than skill.