It is rare for us to meet a client who, regardless of his/her age and experience, does not ask us ‘Is this the right time to invest?’. Courtesy decades of exposure via broadcast and print media to investment gurus who pontificate on such matters, most people have an innate belief that timing matters when it comes to investment matters. We have written extensively on the fact that it doesn’t (eg. see here https://marcellus.in/newsletter/consistent-compounders/quantifying-the-futility-of-timing-the-market/
and here https://marcellus.in/newsletter/consistent-compounders/the-irrelevance-of-short-term-investment-performance/
). However, an American investor, Charlie Bilello, has found an entertaining way to show how much of a waste of time market timing is.
Bilello begins by zeroing in on a pair of twins, Warren and Wallie, who are born in the city of Omaha, Nebraska: “In late August 1930, identical twins Warren and Wally were born in Omaha, Nebraska. They came from a long line of great investors and much was expected of them. While Warren seemed to inherit these genes, Wally wasn’t so lucky and had no investing acumen whatsoever.”
Bilello then informs that Wallie was a sucker for stocks which were the flavour-of-the-day whilst Warren was a deep value investor. Result: “While Warren’s portfolio grew considerably over the subsequent years, Wally had no such luck. He seemed to have the uncanny ability of buying a stock at its absolute top only to later sell in panic after a substantial decline. Repeating this process again and again, he was soon left with nothing. The experience scarred Wally and he swore off the family business of investing.”
Then one day Wallie came upon some money: “Wally didn’t think about investing again until he turned 25, when he inherited a sizable trust worth $130,000. However, the trust came with some strict rules:
- He could only invest in a diversified equity portfolio (S&P 500, no individual stocks) and was not allowed to withdraw any of the funds until his 91st birthday.
- He could determine when and how much of the $130,000 to invest over time but once he bought into the market, he could not sell a single share until his 91st birthday. All dividends were to be reinvested immediately back into the market.
- He was not allowed to see the account balance of his stock portfolio until he turned 91.
- The non-invested portion of the $130,000 would be held in a local bank account earning no interest.”
Since Marcellus did not exist at that time, Wally sat on this money for years. Then when he did start investing it, he would get into the market – again and again – right at the top: “Initially, Wally was hesitant to do anything, but just before his 26th birthday he couldn’t wait any longer. The stock market had been booming for years and Wally feared missed out on the riches that everyone seemed to be talking about.
So on August 2, 1956, Wally invested $10,000 into the market. This was, of course, the day the stock market topped. It would proceed to decline 21% before bottoming in October 1957, and while Wally wished he could sell everything at that point, the rules of the trust prevented him from doing anything.
And so he forgot about investing for a while, until another raging bull market took hold, and he couldn’t resist any longer. On December 12, 1961 Wally invested another $10,000 at, you guessed it, another market top.
Over the next 60 years, he would repeat this pattern over and over again, only adding new investments at bull market tops: $10,000 in February 1966, December 1968, January 1973, November 1980, August 1987, July 1990, July 1998, March 2000, October 2007, September 2018, and lastly in February 2020. His $130,000 was now fully invested in the S&P 500.”
How much do you think Wally’s $130K investment turned into inspite of his atrocious luck? Bilello does a great job of sharing with you the jaw dropping answer: “In August 2021, Wally turned 91, and he was finally able to view his investment account balance and sell his shares if he so chose. While curious to see what was now in the account, he decided to hold off until New Year’s Eve, hosting a small gathering of friends and family that would include his now-famous twin brother.
At the New Year’s Eve party, all eyes were on Wally as he opened the envelope containing the latest statement for his investments. When he saw the number, his jaw dropped. He thought there must have been a mistake. Wally, the worst market timer in history, had amassed a fortune of $18.6 million. This was a 143x increase from the initial $130,000 and a 10.5% dollar-weighted annualized return.
But there was no mistake, the numbers were real. Wally was just the living embodiment of the old adage that time in the market is vastly more important than timing the market. By diversifying, reinvesting dividends, and never selling, Wally had reaped the enormous rewards of long-term compounding.”
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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.
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