As at December 14 of this year, the GSE was down 0.38% for the year and financial stocks on the bourse were down 7.53%. It is usual to hear people say that a poor performance over a calendar year indicates that the next year would be better and therefore it is the right time to buy. After all, economic figures show that the economy has healthy growth, inflation is low and government’s budget deficit is under control. Therefore, the fundamentals of the economy do not justify the poor equity performance this year.

However, there is no guarantee that a good year follows a poor year on the stock exchange. If anything, last year’s 52% return was the aberration over the last 4 years, as 2015 and 2016 returned -12% and -15% respectively, and we may be experiencing a long-term bear market. To jump in heavily on the assumption that good years follow bad years is poor risk management.

The underlying issue here is the question of market timing. Market timing is the entry and exit of an investment position based on a prediction about where the market is heading. The idea is that one can reasonably predict the market and maximize one’s returns by entering before an asset rises and exiting before it plummets.

I am skeptical about market timing. Do I believe that people can broadly predict the direction of a market in the coming period? Of course! The market either goes up or down (and rarely stays the same) so you have a good 50% chance of guessing the direction in which it would move. But do I believe that one can predict the magnitude of movement of the market in either direction, and be able to consistently earn a net positive return after all the commissions and fees (and loss of dividends) of entering and exiting positions several times? No, I do not.

The market has a way of humbling everyone, even the most cautious. Why do you put yourself in more trouble by trying to predict the highs and lows when most of the stock movement within a year is just random? Much better, I would think, to buy into a mutual fund and make regular contributions to it.

So if you ask if this is the right time to invest in equities, you are asking the wrong question. Ask instead if you want to be invested in equities over the long-term. That is more relevant than what the market would do in the next 12 months.