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Those Who Can Time The Market

April 12, 2019

OK, its a teaser headline. I'm not aware of anyone, with any tool or tools who can consistently make correct market timing calls – of when to get in or out of the market(s) or which asset class(es) to move into and which to move out of.

I actually exhibited a minimal amount of "genius" back in my past. This semi-famous call of mine was brought to mind by the death a few years ago of well known and respected market commentator, analyst and manager, Martin Zweig. He and I both shared some fame based upon a call made back in 1987. He, far more than I, nationally on Wall Street Week, Louis Rukyser's famous PBS show and me before a crowd of financial professionals at their national convention.

Marty used some exotic, PhD mathematical and statistical modeling while I, on the other hand, relied upon what I considered a tried and true methodology (in retrospect, these [mine] could similarly have worked for the bubble, the 2008 market debacle and maybe even some future market bubble).

1. My mother - in - law index. This is a variant on the "bigger fool theory" (essentially that you're not a fool to be buying because there will be an even bigger fool who will buy the stock from you). When my mother – in - law started telling me about the stocks she was buying (forget the reasoning), it was definitely time to get out of the market!
2. My cocktail party chatter index (variants might include the locker room or golf course chatter indexes). When the leading topic of conversation at cocktail parties and similar gatherings centered around what each was investing in and how much money they were making doing it – it was definitely time to head for the nearest cave and await the impending doom!
3. What's interesting, while I "felt" the impending financial doom on these occasions, I lacked the courage of my convictions to get out and basically stayed fully invested. This actually created a very positive outcome for me because, as many experts have pointed out this simple (dumb?) strategy works!

One of the problems with having either an actual scientific or mathematical basis for attempting to time the market or even just an intuitive "feeling:" such as I had, is that any market timing decision is really a two step process – whether it’s to be in or out of the market or in or out of an asset class: not only when to get out, but even more importantly, when to get back in!

One current client of mine told one of my classes that he felt like a genius because he, too, avoided the crash of '87 by getting out. Unfortunately, he related, he had waited until 1993 to get back in and had missed good deal of what was probably one of the best bull markets of most investors' lifetimes! I happened to run into an old friend awhile back who mentioned to me and another individual that he was smart enough to see the handwriting on the wall in 2007 and got out. Again, the problem was that he never got back in and had missed the really large upward move that followed in 2009 and thereafter.

Here's the real issue: the most explosive move after a bear market occurs in the first few months or year as a new market move leaves the bottom. Miss that initial move, and the cost to an investor, over time, turns out to be far more than was saved by missing the bear market downturn.

As noted authority, Charles D. Ellis astutely points out to investors: "...when it comes to investing, benign neglect is a wonderful thing...." What he is referring to, of course, is that an investor's own emotions cause more investment carnage than just about any other reason.

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Frederick C. Taylor
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