Reader Comments: Market Timing

Just a comment on your site. I like it. You come up with interesting daily comments I find enjoyable. The only thing I just noticed I disagree with is your investing philosophy you describe in FAQ section:
“Be prepared for bear markets. A lousy market can strike at any time without warning. All stocks go down. It doesn’t mean the stock is broken. Stocks are volatile by nature. That’s the price you pay for superior returns. If you can ride out the bad times, you’ll be rewarded. If you can’t bear to see your portfolio drop by 50%, do not invest in the stock market.”
I couldn’t think of a worst philosophy especially after a 3 year year market we’ve recently had. If that didn’t convince you that ‘buy and hold’ is a failure, nothing will. Buy and hold worked through out the 90’s. But that was a unique time we will likely not see again in our life time.
I believe that there are times to be in the market and times to be out. It is crazy to see the market going down daily in little or large amounts only to watch your hard earned gains disappear. I find there is nothing worse than helplessly watching yourself lose money. There are numerous ways to follow the major trend of the market and catch the trend, whether up or down. Following a few technical facets of the market daily or relying on services that have long term good records in doing so is a far better way. Subscribing to IBD is but one of many examples of where one can find sufficient data to know when the trend in the market is changing, more than just a couple down days. The market moves in cycles and catching a significant portion of both the ups and downs is FAR superior than just buy what you feel are ‘good stocks’ and riding through no matter what the market brings you.
To accept a 50% decline in your portfolio is not only avoidable, it is totally insane. To assume ‘well it just comes with the territory of investing’ is very foolish. Avoiding being invested during down markets or better yet, buying funds that take advantage of the downtrends, is a far better way with less risk. Being a great stock picker is only half the battle. When the market is tanking, and most often it isn’t a surprise and there was plenty of warning if you are watching closely, great stocks don’t care. But I do.
Thanks for your time and otherwise keep up your nice site.

Thanks for your thoughtful comments. I greatly appreciate this kind of feedback.
First let me say that I absolutely agree with you that there are times to be in the market and time to be out. My problem is when. Speaking for myself, I’ve never seen conclusive evidence of a system that can consistently time the market over the long-term.
Perhaps it’s just me. I freely admit that I can’t time the market. I’ve tried. (Oh boy, have I tried!) But I always found out that the market never does what it’s supposed to.
A bear market doesn’t prove to me that buy-and-hold has failed. I know that bear markets will come along. Some will be quite nasty. However, the historical evidence is absolutely clear that the long-term trend of the market is up. In fact, 99% of the time the market is net flat. All the profits come on just one day in 100. My strategy is to assume that the market will go up every single day, and I act accordingly.
Even after the worst bear market in seven decades, the S&P 500 index with dividends reinvested is higher than it was except for a few months right near the market’s peak. If a Rumpelstiltskin had invested in the market 10 years ago, gone to sleep and woken up today, he would have doubled his money. Not bad for the worst bear in market in seven decades.
I truly wish all market timers the best of luck. But for me, I’m sticking with buy-and-hold.

Posted by on December 12th, 2005 at 8:44 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.