Should I sell all my shares and buy back when the market is lower? Expert Michael Farr says that market timing is “nonsense”; instead focus on this

Regular investors have a lot of questions about the recent stock market crash.

They want to know whether they should take advantage of the recent pullback (the S&P 500 is down 20% year-to-date), wait for a better opportunity, or sell outright.

It is a natural question to ask. So MoneyWise sat down with money manager and regular CNBC contributor Michael Farr to pick his investment brains on what to do in today’s market.

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

“Market timing doesn’t work, it will catch you in the end,” says Farr. “To think that you are going to buy this with a 10% retracement and that it will be material to you 20 years from now is nonsense.”

But while Farr remains bullish on the stock, he thinks investors need to stay vigilant and pay attention to some major roadblocks.

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The Federal Reserve

Monetary policy tightening is one of the main concerns of the stock market at the moment.

The Fed kept its benchmark interest rates historically low during the COVID-19 pandemic. 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 in turn the stock market, can handle a higher rate environment.

“The market can handle higher interest rates, but not much higher,” says Farr.

Farr suggests that two or three rate hikes may be enough to control inflation without killing our economy’s growth momentum. The danger is that the Fed will overdo it.

“Historically, the Fed is wrong,” Farr warns. “It’s because it’s terribly difficult to do. And we end up more than 80% of the time in a recession after the Fed starts a rate hike cycle.”

The stock market

When interest rates rise, high-priced growth stocks, which have high earnings expectations built in, tend to be hit the hardest.

That’s why Farr believes now might be the time for value stocks (“discounted” securities that trade at below-average price multiples) to shine.

“We’ve had more than a decade where value has underperformed growth,” Farr says, “and those companies with very good balance sheets and cash flow and limited, if not reasonable, debt, I think They have already started acting.”

Farr notes that this “change in style” usually occurs over several years. But what specific areas should investors look at?

“I certainly like health care, I still like industrials, I like financial stocks. And I still think there are opportunities in large-cap technology companies with strong balance sheets.”

“This feels like a blue chip environment in almost any industry.”

Decent tailwind for power, but no autopilot

In 2021, energy was by far the best performing sector in the S&P 500. And with strong momentum in oil prices, the sector continues to attract investor attention in 2022, even as the broader market falls.

The Energy Select Sector SPDR ETF is up nearly 41% year-to-date, substantially outperforming the S&P 500.

Farr acknowledges the strength in commodity prices, adding that disruptions in Ukraine and other parts of the world could keep oil and gas prices elevated.

But it also points to the volatile nature of cyclical stocks like oil: Investors often have three or four good years in the cycle and then have to deal with several bad years.

Careful monitoring is required if you want to successfully invest in the space.

“A cyclical stock requires a buy and sell decision that you really need to get right. The sector has a tailwind, but it is not a set and forget it as a sector”.

The bottom line

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

For long-term investors, it might be best to simply ignore the ups and downs of the stock market.

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

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