Capitalism is why market timing works. Just like the reason some statistical risks that are nearly coincidental in the insurance business produce varying results from the insurance companies. There are numerous inefficiencies in the investment world: namely idiots who manage money with emotion, hunches or no recognizable pattern whatsoever. These inefficiencies are calcuable. Since most of the posters here seem to be buy and hold or index investors; they would not be creating inefficiencies – but you’d be a fool to believe they do not exist.

This is why 25% (or closer to 21% as I’ve read) was posted above as the percentage of money managers who beat their benchmark. This is somewhat like Paretos Law; the 80/20 rule, et al. A majority of investors do not have the emotional fortitude to stay invested in some markets nor the dicipline not to chase a runaway bubble. When exploited, the 20% or so who are using statistical probability are able to make the majority of returns. This is not science fiction, it’s reality. This is the very reason that there are managers, timers, traders and the like that have handily produced positive returns for decades and annualized returns much higher than broad world or US stock indices.

It’s too bad that CNBC and their fellow market commentators only add fuel to the fire with lousy commentary and idiot money managers who are consistently wrong. Bad for buy and hold, I should say. For mathmaticians and statiticians, on the other hand, this is exactly why market timing does work but is usually not made available to the broad investing public.

Stock Market Timing does work; but thankfully, not for most.

Cheers,

Jason

Of course, bear markets always put them in their place. . .How you doing Wade Cook?

(But where did the lighter fluid come from?)

“The market timer’s Hall of Fame is an empty room.”

Best Wishes,
D4L

This is the Ben Stein method of timing the market.

I use something similar, but look at several other technical indicators including stochastic oscillators, different moving average intervals, MACD, and a hybrid StochRSI with a 20 day interval. These have never let me down. I also look at the money flow index.

Since 85% of all stocks are owned by pension funds, mutual funds, and big retirement accounts, watching what they do can pay off big time. With less than $20 billion to manage, I’m able to do what Buffet affectionately calls, “dancing in and out of markets.” Oh yeah, remember that Buffet says that the efficient market theory is bunk and that he hopes business schools keep teaching it because it makes him a lot of money.

-1MansMoney

Buffet speaks of “dancing in and out of the markets” lamenting the fact that it is much more difficult when he’s managing billions.

He also speaks of buying companies when they’re “on sale.”

The key to market timing is to know how to properly value a company.

I do agree that long-term returns might be lower than 11%. Dividends have historically accounted for 33-40% of total returns. So with current yields at 2% for the SPY, that brings the equation to about 6% total returns annually.

@Undertrader: “Real ‘timers’ (and I’d rather use the term trader), real traders study stocks and learn where they rest.”

“Many, many people invest in mutual funds. Sure, you are holding those, but what is the fund manager doing? That’s right, they’re buying this and selling that constantly. That’s how they get returns. If they were just buying and holding, wouldn’t need a manager, that would be called an ETF.”

Actually, it would be called an Index Fund. I just finished reading “A Random Walk Down Wall Street”. 3/4 of actively traded mutual funds fail to MATCH the S&P 500, let alone beat it.

Armies of analysts have been trying to figure out how to predict market or individual stock moves for 100 years and have not made any progress. The “problem” is that the market is efficient and arbitrage opportunities do not pop up very often, and when they do, they are quickly exploited out of existence.

Have fun timing the market, I’ll be happy matching the Wilshire 5000 with my Vanguard Total Stock Market Index Fund. It won’t be exciting conversation at a cocktail party, but I’ll bet that I’ll have a bigger percentage of my net worth in gains than those who actively trade and/or try to time the market.

What people need to separate, in my opinion, is ’successful’ from ‘greed.’ Sure, you COULD have left cash in the market and made 20% a few years ago, however, if you had sold out and taken 12% is that bad? Not at all. Not to mention that you lowered risk by selling.

Another thing people fail to understand is that it’s not really how much a stock goes up that makes you money, but the number of shares. You could trade Disney between $20 and $35 forever and make a killing and the buy and holder would make $15 a share at the most. A nice return, sure, but if you always bought when it was at $25 and always sold when it was at $30, you would kill the buy and holder.

The problem most people who ‘time’ the market have is that they go all or nothing. They put all of their eggs in one basket and make a huge gamble. That’s not the way to do it. Real ‘timers’ (and I’d rather use the term trader), real traders study stocks and learn where they rest. Disney over the last decade or so is a $30ish stock. If it goes below that, I invest in it. When it gets in the $35ish range, I sell half my shares to get cash. It drops back down, I buy more.

Apple dropped from $200 to $120. You can time that. Apple at $120 was a great time to buy. Even if you just rode it to $130, I think $10 a share return is pretty darn good. Especially if you had 10,000 shares.

Many, many people invest in mutual funds. Sure, you are holding those, but what is the fund manager doing? That’s right, they’re buying this and selling that constantly. That’s how they get returns. If they were just buying and holding, wouldn’t need a manager, that would be called an ETF.

In any event, the key is to develop a strategy and then be consistent and have a return that you are after. Don’t be greedy. Especially with individual stocks. For all of the great stories out there, there are literally thousands of losers that people bought and held. K-mart, Montgomery Wards, Enron, etc…

Invest in peace…

With the Boglehead index fire-and-forget-for-the-rest-of-your-life stuff, I *really* dig it. But whenever I try to bring it up with my actively-managed Fidelity-type friends, they get offended. I have less resources than they do, so they’re less inclined to consider my opinions.

And you would’ve done worse if the market had continued to go up… You didn’t sell back then because you didn’t know what was about to happen, and that’s the whole point. It’s very easy to look back now and know what you should have done.

I remember sitting at home last summer saying “Boy, my stocks are high.” I should have said, “I need to sell some and take the profit and pay some on my mortgage.” I would have done even better if I had taken some profit, sat on it, and then reinvested now with the markets being 10% lower.

It is market timing, but its more like common sense. Enter the market after a drop or a pull back. If you have $1000 to invest would you put it in the market on a day it went up 1.5% or on a day it dropped 1.5%?