Sensible Market Timing

Investing advice is a big business.

Every day, investors are swamped with advice and ideas from thousands of experts.

But I’ve noticed that very few are willing to even try to accomplish the most important task of an advisor – to help their clients avoid the sharp downturns that devastate portfolios and wealth.

I’m not talking about day trading or other short-term strategies here, but rather educating the average investor so he or she can see the more enduring swings in the market.

As legendary tycoon and investor Sir James Goldsmith put it:

The job of an investment company is to decide to invest in the right thing in the right place at the right time. But the right thing is the least important. If you picked the very best share in St. Petersburg in 1917 you could be the greatest genius in the world and still go bust… You have to be able to see the swings in the market.

Share Prices Follow Earnings

One common mantra of gurus is that stock prices follow earnings. This adage also applies to specific companies and the market as a whole.

And we all know that Sir James Goldsmith is absolutely right that a sharply down market pulls almost all companies down – even those with rising earnings.

So I found it interesting that a firm I greatly respect, Encima Global, recently came out with a cautionary message on U.S. equities. Below is a brief summary of why it thinks that stocks may be facing some rough times ahead: