Market timing is an illusion

I was struck yesterday by a key investment principle that sometimes comes under attack by so-called “experts” who think they can time the stock market.

All of a sudden, after nearly two weeks of losses, the Dow Jones industrial average soars 250 points — closing more than 2 percent higher Wednesday.

What’s going to happen today? And what about Friday when the unemployment report comes out?

After nearly 30 years as a business journalist, I can say without equivocation that I don’t have a clue. And I don’t know who does.

Most of the gains in the stock market in any one year are made in 10 or 20 particular days, according to several studies I’ve read over the years. But picking those specific days out of 365 is impossible, in my view.

If you’re in the market, please beware of “timing strategies” and “experts.” There are not a lot of Warren Buffetts running around among market timers.

- Henry Unger, The Biz Beat

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16 comments Add your comment

TnGelding

December 2nd, 2010
6:22 am

Warren is a long term investor, not a trader. I’m certainly no expert, but I took half of my profits yesterday and hope to take the other half today. If the market goes down today, I buy back what I sold yesterday. There is too much uncertainty in the world to stay fully invested all the time.

TnGelding

December 2nd, 2010
6:25 am

Futures are up. Need a good first time unemployment claims number. 400k would be great, but anything around 425k would be acceptable.

shadow7071

December 2nd, 2010
7:17 am

Once upon a time a company’s stock market value was based on the company’s assets, liabilities, sales, and profits. Also contributing to the stock market value was it’s products, people, processes and technologies. All of these measures were indicative of a company’s sustainability and potential growth. And the company’s ability to weather economic downturns and recover.

In today’s market a company’s stock market value is based on the whimsical thinking and advice of market analysts and experts. Much of this thinking and advice has more to do with superficial measures of a company’s sustainability and potential rather than sound business measures. The result is these abrupt, erratic and un-forseen rises and falls in the market that are caused by some analyst aligning a company’s long term potential with some discrete event that may have little long term impact on the company.

Even the great Warren Buffett has been victim of this thinking.

Economics

December 2nd, 2010
8:06 am

The Stock Market is a rigged game, it is manipulated for a sellect group. This shouldnt come as a surprise, it is NOT to be trusted as any indictactor or berometer as to the health of the economy. It’s a gamble, enter at ur own risk. Unfortunetly the cards are stacked against you.

former buy and holder

December 2nd, 2010
8:11 am

It depends on what you mean by “market timing”. The logic about missing the biggest gaining days of the year also apply to the biggest losing days of the year. There is some evidence that some momentum strategies outperform on a risk-adjusted basis.

Momentum strategies are thought to generally lag a strict buy and hold strategy–and they do during bull markets. When it keeps you out of a bear market, it more than makes up for being slightly behind in bull markets. I’ve proven this to myself. Now if I can only get my tuition refunded from my MBA finance classes.

Destin Dawg

December 2nd, 2010
8:34 am

Henry… GET A CLUE….good seasonal time of year to be over weight stocks….Dec. and Jan…. bonds are the bubble…. no return on cash… have some foreign funds, small and mid caps, metals and mining, stay diversified… selected real estate on distress sales ( foreclosures ) unless you already have 2 homes.. ” Be greedy when others are fearfull “

chingy right thurr

December 2nd, 2010
8:42 am

Just because Unger is no good at it doesn’t mean its an illusion.

TnGelding

December 2nd, 2010
8:46 am

former buy and holder

December 2nd, 2010
8:11 am

Welcome to the club. If I can catch one of those 10 or 12 days a quarter, I’m happy.

Do be patient.

Don’t be greedy.

TnGelding

December 2nd, 2010
8:48 am

Bad unemployment number, but maybe we can get lucky. That never hurts when all else fails.

Destin Dawg

December 2nd, 2010
9:07 am

times to get conservative… was spring of 2000 and fall of 2007.. then cost average back into stocks…over next couple years,.. that’s how I stayed retired… you could just feel the irrational exuberance… we don’t have that now….

TnGelding

December 2nd, 2010
9:13 am

I heard someone refer to now as rational exuberance.

JF McNamara

December 2nd, 2010
9:51 am

Maybe Henry Unger needs to do some research if Henry Unger doesn’t understand the markets. I agree you should be wary of anyone but yourself in the stock market. I don’t agree that you can’t gain an advantage in the markets if you know what you are doing.

Roger Schreiner

December 2nd, 2010
4:40 pm

When you said, “I don’t have a clue” I stop reading. As for other that might/do, it is worth the search/effort to find them. I know a few (a precious few).

TnGelding

December 3rd, 2010
4:05 am

I’d rather lose a little money on a stock I picked than make a little on what somebody else recommended.

TnGelding

December 3rd, 2010
11:48 pm

But I’d rather make a lot of money on a stock someone else suggested than lose a lot on one of my picks.

TnGelding

December 4th, 2010
4:58 am

Good week. A gift. Hope everyone was able to accept it. Has the Santa Claus rally started?