Market timing is something I’ve found many investors get drawn to eventually in their search for performance. My opinion is that market timing simply doesn’t work for a host of reasons. However it’s common to hear that if an investor just timed these various assets correctly they could have made X amount more. Yes, that’s true. But my take is simple: Timing matters but market timing doesn’t fix it.

Timing matters but market timing doesn’t fix it.

The issue is not that in hindsight that some mix of correctly timed buys would produce superior results. I don’t dispute that. But what I do dispute is that these things can be known ahead of time.

It is interesting because running this blog and forum I get people writing me all the time about timing the assets. Asset X is too much, Asset Y is a better buy, I’m going to wait on Asset Z. Etc.

I just tell them to buy all at once and be done with it. And that has proven to be the best advice over and over again. Not just because they will worry less about their money, but they will take their emotions out of the decision going forward.

It’s one thing to say an investor found some kind of timing mechanism that works on historic data. But it’s another thing entirely for them to actually follow it. What I’ve seen over and over again is that even if I thought their strategy were sound (which is practically never), they just don’t have the follow-through. More specifically, their timing system probably doesn’t work anyway and they’re using it as a way just to confirm their own biases and feelings for or against some asset class.

I had people writing me back in 2008 saying they didn’t want bonds because they were too expensive. By end of 2008 they went up +30%! So they got way more expensive.

Then in end of 2008 I told people to rebalance into stocks because they were decade low prices. But someone would write and point out all these technical analysis graphs showing, conclusively, that the Dow was going to 3,000 or whatever so they weren’t going to buy.

By end of 2009 stocks posted almost +30% gains.

Then in 2010 someone would write and not want to buy LT bonds. They said they got killed in 2009 with -20% losses and that 2010 would be just as bad because “interest rates have nowhere to go but up.”

Well they were wrong. Bonds were +9% for the year.

Then in 2011 someone would say that bonds, again, were going to lose money and they wanted to sit in ST cash because some guru had gone short on their maturity.

In 2011 LT bonds posted +30% gains.

But you know if someone had just bought all the assets and done nothing they’d have pulled in very good gains over these years with no hassle or stress. It’s easy money.

I understand the desire to time the markets. But aside from the technical aspect of knowing if the strategy will even work (it won’t), the bigger problem on top of it is that humans just aren’t good at controlling their emotions. They seek out data to confirm their biases. I have found repeatedly that this behavior not only makes them lose more money than someone that just bought in, but probably keeps them exposed to other market risks.

Here is a clip of Harry Browne discussing the same exact problem. De Ja Vu all over again:

Harry Browne on Timing Assets: Don’t do it!

Market timing doesn’t work. It doesn’t work for technical reasons and it doesn’t work for emotional reasons. Just buy the assets all at once and keep them rebalanced and you’ll be fine.

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