"The first law of compounding is to never interrupt it unnecessarily." — Charlie Munger
One of my favorite financial writers, Nick Murray, recently revisited a story that perfectly captures why market timing is so difficult.
In December 1996, Federal Reserve Chairman Alan Greenspan warned that the stock market was showing signs of "irrational exuberance."
If anyone had the information and expertise to call a market top, surely it was the Chairman of the Federal Reserve.
Stocks had risen dramatically, technology companies were capturing investors' imaginations, and many believed the market had become dangerously overvalued.
Sound familiar?
In that case, he was right that a bubble had formed.
He was wrong about when it would end.
After his famous warning, the S&P 500 didn't fall—it more than doubled before finally peaking over three years later.
Imagine the investor who sold everything after hearing Greenspan's warning. They would have missed one of the strongest stretches of returns in market history.
It means that knowing something is expensive is very different from knowing when it will stop becoming more expensive.
That's the lesson.
Today we hear the same predictions:
- "The market is overvalued."
- "AI is a bubble."
- "A correction has to be coming."
Maybe.
But history reminds us that being early can be just as costly as being wrong.
That's why successful investing isn't about predicting the next market move. It's about building a portfolio and financial plan that can weather the inevitable ups and downs without requiring you to guess when to get out—or when to get back in.
Let me repeat this wonderful news to dislodge one of the most stubborn misconceptions about investing: timing markets is NOT REQUIRED for investment success; indeed it is the most common mistake that unguided investors make.
As Nick Murray often reminds us, no one has consistently been able to time the market—not even the smartest people in the room.
Over time, the greatest investment advantage usually doesn't belong to the person with the best forecast.
It belongs to the person who stayed invested long enough for compounding to work.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
Securities and Retirement Plan Consulting Program services offered through LPL Financial, a Registered Investment Adviser, Member FINRA/SIPC. Advisory Services offered through Western Wealth Management LLC, a Registered Investment Adviser, dba Kennebec Wealth Management. LPL Financial, Kennebec Wealth Management LLC and Western Wealth Management LLC are separate entities.