Should I sell all my shares and buy them back when the market goes lower?Expert Michael Farr Says Market Timing Is ‘Bullshit’ – Instead Focus on It

The average investor has a lot of questions about the stock market’s recent rout.

They wonder if they should take advantage of the recent pullback (the S&P 500 is down 20% so far this year), wait for a better opportunity or sell outright.

This is a natural question. So MoneyWise spoke with fund manager and CNBC regular contributor Michael Farr to pick out his investing brains on what to do in the current market.

His advice is simple: don’t try to time things.

“Market timing doesn’t work, it ultimately benefits you,” Farr said. “It’s nonsense to think you’re going to buy it on a 10% pullback and it’s going to matter to you 20 years from now.”

But while Farr remains bullish on the stock, he thinks investors should remain vigilant and be aware of some important headwinds.

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Fed

Tightening monetary policy is one of the main concerns for the stock market right now.

During the COVID-19 pandemic, the Federal Reserve has kept its benchmark interest rate at historically low levels. But with inflation now at 40-year highs, the Fed has already raised rates twice in 2022.

But the big question is whether the economy and the stock market can cope with a higher interest rate environment.

“The market can afford higher rates, but not much higher,” Farr said.

Farr believes that two or three rate hikes may be enough to tame inflation without stifling our economy’s growth momentum. The danger is that the Fed could go too far.

“Historically, the Fed has been wrong,” Farr warned. “That’s because it’s very difficult to do. We end up in a recession more than 80% of the time after the Fed starts the rate hike cycle.”

stock market; stock market

High-priced growth stocks with high earnings expectations tend to be hardest hit when interest rates rise.

That’s why Farr thinks it might be time for value stocks — securities traded at “discounted” price multiples below average — to shine.

“We’ve been through more than a decade where value performance has lagged growth,” Farr said, “and companies that have very good balance sheets and cash flow, if not, you know, there’s a limit to the amount of debt that is reasonable, I think The show has already started.”

Farr points out that this “style shift” typically lasts for years. But what specific areas should investors focus on?

“Of course I like healthcare, I continue to like industrials, I like financials. I continue to see opportunity in big tech stocks, companies with strong balance sheets.”

“It feels like a blue-chip environment in almost every industry.”

Decent energy tailwind, but no autopilot

Energy is by far the best-performing sector in the S&P 500 in 2021. With oil prices gaining momentum, the sector will continue to attract investor attention in 2022 even as the broader market declines.

The Energy Select Sector SPDR ETF is up nearly 41% so far this year, outperforming the S&P 500 by a wide margin.

Farr acknowledged stronger commodity prices, adding that disruptions in Ukraine and the rest of the world could keep oil and gas prices high.

But he also points to the volatility of cyclical products like oil: Investors typically get three to four years of good years in the cycle, and then have to deal with several years of bad years.

If you want to successfully invest in this area, you need to monitor it carefully.

“Cyclical stocks require buy and sell decisions, and you do need to make the right decisions. The industry has tailwinds, but it’s not a fixed industry, forget it.”

bottom line

Stocks are volatile. We all want to buy low and sell high, but no one can perfectly time the market.

For long-term investors, it’s best to ignore the ups and downs of the stock market.

“My partner John Washington once said that the best time to buy stocks is when you have the money, and the best time to sell stocks is when you need the money,” Farr said. “Otherwise, don’t worry about where the stock market is.”

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This article is for information only and should not be considered advice. It does not provide any kind of guarantee.