Yesterday in Barron’s, Mark Hulbert asked: “So, How Did the Market Timers Do?“:

“Now is a perfect time to ask these questions: With the stock market back to where it stood in October 2007, the last five-and-a-half years constitute an ideal laboratory in which to judge the success of market timing in the real world. Only after a full market cycle can we tell whether a timer can both get out at tops and get in at bottoms . .

The first lesson that emerges from the HFD data may be obvious, but is worth noting: No market timer called the market top in October 2007 and the bottom in March 2009, if by “called” we mean went completely to cash on Oct. 9, 2007, the exact day of the high, and got back 100% into stocks on March 9, 2009, the precise date of the bear market bottom.”

With all due respect to Mark, he’s doing it wrong.

The data overwhelmingly shows that no one is ever going to make a risk assessment that allows them to top tick on the way out going to 100% cash at the highs and bottom tick at the bottom, going all in. Forget the proverbial typing monkeys writing Hamlet; even a million fund managers over a million cycles might not generate one outcome of top and bottom ticking. And if it did, we know it would be purely random. Perhaps a fairer test to the Timers would be getting out within 10-25% of a peak and getting back in within the same parameters at the bottom. (Hulbert plays with the parameters for timing in the column, but none of the Timers does especially well).

Regardless, that one in a million-million trades misses the point. Individual investors should not market time, but they should be aware of other factors when they make capital commitments.

I prefer to employ Risk Analysis rather than engage in pure Market Timing.

Rather than making a low probability attempt to market time, there are quite a few things other things investors should at least be aware of, rather than attempt to jump in and out:

• What is the overall trend in the market — is it rising or falling or going sideways?

• Are Earnings rising or falling?

• Is my asset allocation percentages appropriate for the current secular cycle?

• How are stocks valuations? Measured by both a simple forward P/E and a longer term 10 year (i.e., Shiller CAPE), are stocks cheap or pricey?

• Am I taking advantage of mean reversion to rebalance my holdings based on asset class?

• Are interest rates rising or falling?

• What do the regular 5%, 10% even 20% pullbacks mean to your portfolio?

• Do I understand that my comfort level about market volatility and risk is typically inverse to present opportunities?

Most people are much better off if they simply do two things: Rebalancing their holdings on a regular basis and changing the tilt of their allocations on rare occasions (i.e., 70/30 to 60/40).

Focus on maintaining an intelligent balance of assets, and leave the martket timing to the newsletter writers. When they get it wrong, they lose subscribers. When you get it wrong, it crushes your retirement plans . . .



Market Corrections: Scott Adams Discovers Market Manipulation  (March 4th, 2013)

So, How Did the Market Timers Do?
Barron’s MARCH 12, 2013

Category: Apprenticed Investor, Cycles, Investing, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

9 Responses to “The Truth About Market Timing”

  1. hammerandtong2001 says:

    “It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level, which should show the greatest profit. And their experience invariably matched mine –that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn…”

    Livermore’s remarkable and expert insight infers trading outcomes which I, personally, have never matched. And to the point of the post above, I’ve also never seen a timer be largely “right” at the “right time.”

    Which leads to Baron Rothschild’s far more achievable guideline…when asked how he’d amassed his great fortune, Rothschild explained simply: “I always bought too late, and sold too early.”


  2. [...] The Truth About Market Timing.  (TBP) [...]

  3. A says:

    Isn’t it interesting in this era of ‘I want it all, I want it now”, that few if any of these ‘timers’ are amassing the wealth that Buffett acquired in a longer term, logical and patient fashion ?

    Is greed simply a race that is never finished ?

  4. I agree with Barry. Market timing is not about calling the exact top and bottoms but merely about recognizing soon enough a change of the long-term trend. Legendary trader Paul Tudor Jones made it clear that calling the exact top or bottom is futile.

    Furthermore, even if one first-class investor was endowed with super natural powers and could detect in real time tops and bottoms, such prescience would be to little avail because as soon as he began to amass money, he would be too big and hence not able to move in and out huge sums of money in just one day.

    Thus, it is not surprising that giants like Buffet are “buy and hold”; they are forced to do so. Some of them because they are true believers in buy and hold (like Buffet), others out of necessity.


  5. Frilton Miedman says:

    “• Am I taking advantage of mean reversion to rebalance my holdings based on asset class?”


    Last year BR posted about transports seriously lagging benchmark, while everyone was attempting to project market direction I suggested getting long tranny’s and short SPX or another over-valued sector/index.

    I’m not suggesting anyone do this, you won’t get rich overnight, but to note there are risk mitigating ways of capitalizing on anomalous spreads between major sectors, rather than attempting to time the whole market.

  6. winstongator says:

    There are other factors than just whether someone goes all-cash or all-market. Consider 2007. Were you buying a home then? Were you buying with the assumption of continued price appreciation. What was your savings/spending rate? One big problem people got into in 2007 was having a low savings rate, with the idea that asset appreciation was more than sufficient to grow their nest egg. If you were incurring liabilities assuming asset price increases, when those assets started decreasing in price, and your income went down, you were completely stuck.

    My litmus test is: was someone voicing caution in 2007, and were they saying things would start to get better in 2009. There were lots who said things would keep going from 2007 on, and who also said things would continue to get worse past 2009.

  7. CANDollar says:

    I like to use the 40 week moving average as a rule to tactically change asset allocation. I do not go to cash as in Fabers tactical asset allocation paper but typically rebalance and alter allocation to and from risk assets by up to 10%.

  8. [...] a recent post on his blog, The Big Picture, Barry Ritholtz explains why he prefers to employ risk analysis rather than market [...]

  9. mad97123 says:

    Mark Hulbert, – Be on your guard in coming weeks for declarations that market timing is dead.