Market timing
Many investors feel that they can make more money by getting in and out of the market when they feel that share prices generally will go up or down. The brokers (commission), market makers (spreads) and government (stamp duty) will certainly make more money from investors who trade. Investors who try to time the markets are more likely to lose money. Even the very successful professional investors and academics do not believe that it is possible to time the markets. Here's what some of them have to say about market timing:
Benjamin Graham
... a policy of entering the market when it is depressed and selling out in the advanced stages of a boom. ... the market's action in the past 20 years [ending 1971] has not lent itself to operations of this sort on any mathematical basis.
Burton Malkiel
An investor who frequently carries a large cash position to avoid periods of market decline is very likely to be out of the market during some periods when it rallies smartly. 95% of the significant market gains over the thirty‐year period from the mid‐1960s through the mid‐1990s came on 90 of the roughly 7,500 trading days.
An investor who frequently carries a large cash position to avoid periods of market decline is very likely to be out of the market during some periods where it rallies smartly. During the decade of the 1980s, the Standard & Poor's 500 Index provided a very handsome total return (including dividends and capital changes) of 17.6%. But an investor who happened to be out of the market and missed just the ten best days of the decade ‐ out of a total of 2,528 tading days ‐ was up only 12.6 percent. Similar statistics are descriptive of the entire period from the early 1960s through the 1990s.
Obviously, being ''out of the market'' during a period of sharp decline, such as October 1987, would have saved you a lot of grief and money. We all hear of those ''astute'' few who ''knew'' the market was too high in early October and sold out. But unless those timers got back into the market right after the lows were hit, they were not more successful than investors who followed a ''buy‐and‐hold'' strategy.
Over the past forty‐nine years the market has risen in thirty‐three years, been even in three years, and declined in only thirteen. Thus, the odds of being successful when you are in cash rather than stocks is almost three to one against you.
An academic study concludes that a market timer would have to make correct decisions 70 per cent of the time to outperform a buy‐and‐hold investor.
Gerald Loeb
You should review your investments at least once a year to see if you have any weaklings that need weeding out. But ducking in and out of the market for short term gains should be left to the hardened professionals.
John Bogle
In 30 years in this business, I do not know anybody who has done it successfully and consistently, or anybody who knows anybody who has done it successfully and consistently. Indeed, my impression is that trying to do market timing is likely not only not to add value to your investment program, but also to be counter productive.
...market timing is impossible. Even if you turn out to be right when you sold stocks just before a decline (a rare occurrence!), where on earth would you ever get the insight that tells you the right time to get back in? One correct decision is tough enough. Two correct decisions are nigh on impossible.
Mark Mobius
No one knows if we are in a bear or a bull market until the price movements are over and that is of no interest to anyone who is trying to time the markets. The key, of course, is not to time the market and to take a long view. If you are trying to predict whether the last four weeks are the early stages of a bear market which will then warn you to get out of the market then you are taking the wrong view. Unless you have a five‐year view, the chances of you making a mistake are very great.
Peter Lynch
The person who never bothers to think about the economy, blithely ignores the conditions of the market, and invests on a regular schedule is better off than the person who studies and tries to time his investments, getting into stocks when he feels confident and out when he feels queasy.
All the major advances and declines have been surprises to me.
Philip Fisher
Short term price movements are so inherently tricky to predict that I do not believe it is possible to play the in and out game and still make the enormous profits that have accrued again and again to the long term holder of the right stocks.
Ray Dalio
Market timing — Don't do that ..... market timing is a very difficult thing. It's a very difficult thing for we, who put hundred of millions of dollars each year, and we have 1,600 people at Bridgewater.
Scott Johnston
We stay fully invested at all time. For 20 years I haven't known of anyone who can consistently and accurately time the market.
Warren Buffett
Since the basic game is so favourable, Charlie and I believe it’s a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of “experts,” or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it.
I never have the faintest idea what the stock market is going to do in the next six months, or the next year, or the next two.
Investors, of course, can, by their own behaviour, make stock ownership highly risky. And many do. Active trading, attempts to “time” market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy. Indeed, borrowed money has no place in the investor’s tool kit: Anything can happen anytime in markets. And no advisor, economist, or TV commentator – and definitely not Charlie nor I – can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.
Investors need to avoid the negatives of buying fads, crummy companies, and timing the market.