I used to dole out advice about market timing. The thinking went: Watch for a certain amount of market trading volume, and wait so many days after an uptick to jump back in. Sounds good, right? Like a very scientific way to avoid bear traps.
I haven't seen any market timing methodologies with decades of empirical evidence to show that their system is foolproof. Sure, there are vague disclaimers, like, "This works 70% of the time." Says who? Where is the evidence?
Sadly, cherry-picked data often mollifies trading-system adherents. This or that system identified the beginning of the March 2009 market rally. The same system failed on numerous other occasions, but you don't hear so much about that.
For reasons I can't fathom, traders are fond of quoting the obtuse garble of Jesse Livermore (who contradicted his own advice repeatedly, and was clearly not a role model as a happy or stable person).
However, more wisdom can be found in the words of another early 20th century investor, Benjamin Graham, who penned the famous investing textbook, "Security Analysis," and whom Warren Buffett names as a key influencer.
In an interview in March 1976, just a few months before his death, Graham said: "[If] I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what's going to happen to the stock market. ... And all you have to do is to listen to "Wall Street Week" and you can see that none of them has any particular claim to authority or opinions as to what will happen in the stock market. They, and economists, all have opinions and they are willing to express them if you ask them. But I don't think they insist that their opinions are correct, though."
Um, yeah, that last part sure has changed in the past 40 years, or maybe it's just the talking-head interviewers who believe the opinions are correct.
The very premise of market timing assumes that somebody has the magic formula, the silver bullet, the proper mix of technical and fundamental analysis to help you miss the worst-performing days in the market, and only bask in the sunshine of those days that go up, up, up.
Of course, as we have seen lately, sometimes those big upside days follow or precede the big downers. Unfortunately, I don't know of anybody with a foolproof system for picking exactly the right moments to get in, and the right moments to get out.
And then there's that little matter of what securities to get in and out of.
Going into the third quarter, back in early July, would you have zeroed in on little-known small caps Bofi Holdings (BOFI), Avolon Holdings (AVOL) or Tech Data (TECD) as those certain to be among the best price performers over the next three months?
Likewise, at the beginning of 2015, you probably didn't turn to your significant other and say, "Honey, we're going to sell all our U.S. stocks, and go all-in with Argentinean stocks this year, because I have a hunch it's Argentina's year!" And yet the MERVAL Buenos Aires index is up nearly 19% year to date.
It's not hard to see: When you try to time your buys and sells around particular investments, you run the risk of being very, very wrong. Every year, researcher Dalbar updates its survey of retail investors and shows that once again, the average investor didn't even match the returns of the Standard & Poor's 500 index, mainly due to bad timing of buys and sells.
Don't blame the market. Over time, it really does go up. That's been true through recessions, depressions, wars, and the ever-present "troubled times" that people seem to think are unique to the present moment.
If that tells you anything, it's that the timing question is always bad, yet markets muddle through, and for those with patience, actually deliver real returns.