Do stock market timers really work?

Richard N. Day: Do stock market timers really work?
Financial advisers and market pundits say that you cannot “time the stock market”. They advocate Buy and Hold and other methods to invest. Most of these methods have been proven not to work, (buy and hold lost 27% over last 10 years) or don’t provide enough return to support your equity growth over time. Does it make sense to take a portion of your investment capital and invest it using a good market timer?

Answers and Views:

Answer by GWR309
You never know when the stock market will go up or down. Even when you think it’s at it’s highest, to sell, it could just keep going back up, and you would end up losing money, and vice versa when it is at its lowest.

Only buy/sell when it is at the extremes such as when it crashed a few years ago.

I bought a mutual fund with a target date of 2040 (meaning I leave most of it alone until 2040, and as inflation occurs, this will keep up with it) at the lowest point when it crashed.

So the best thing to do is keep it until you plan to retire.

Answer by livesoft
NoooOOOooo

Answer by Spock (rhp)
imo, there is no doubt that market timing works.

the problem is that most people haven’t the right psychology, or enough education and experience to make it work for them, AND that’s if they have the time required — which isn’t trivial.

Hiring a service isn’t much better. How do you know that this particular service is actually any good instead of just lucky? Past performance isn’t a predictor of future results — the markets change and traders have to adapt as the changes unfold.

Just like in business, you can’t judge the work of a specialist if you know nothing about the specialty. This is why salesmen end up hiring incompetent CFOs, accountants, HR specialists, etc. — they can’t tell when they’re getting fed a line of BS instead of the real deal.

Timing, as a trading practice, works the same as any other trading practice — you have to understand the system, watch continually to make sure it isn’t fouling up, adjust it with some frequency, and be willing for things to go mildly wrong — so that they won’t go hugely wrong.

Risk control is far more important that choosing the entries or even the exits.

And managing yourself [the person who decides] is even more important than that. If you make bad decisions because you’re scared today, or greedy today — they’ll get you.

Answer by Jeffy
Your assumption is wrong and I dont know how you got -27%… If you just look at the S&P500 over 10years you get around -5%
Buy and hold strategy works better on long periods of time (life time). If you take this into account you still get positive returns. Let’s say 40 years from 1970 to 2010 and you get around 1173% return on the S&P500 over 40 years or an average return of 11% per year…
Buy and hold still works over the long term.

If you want to try market timing that’s your call. If =you know what you are doing then go. Otherwise it’s called gambling.

Answer by Jay L
If you believe in Buy & Hold, you must also believe in the Tooth Fairy and Santa Claus or own a crystal ball. How many have had their life’s savings destroyed because they invested in Filene’s Basement, Cisco, Citibank, Six Flags, Enron, GM, Circuit City, Charter, SGI, GE, AIG, Lehman Brothers, Bennigan’s, Skybus, … This list is almost endless and it’s not going to stop growing. True, many have recovered. But, did you buy at their top or the bottom?

Investing is not like a passive sport. You have to take an active role. If you simply invested in the S&P 500 over the past decade you would have lost money. Instead, if you had used the most naïve market timing strategy you would have been far ahead. A Buy & Hold investment 1/5/2001 would have lost 5.87%. A similar investment on 1/5/2006 would have lost 4.51%. If, on the other hand, you had used a 250 day moving average over the same periods the results would have been dramatically different. The strategy is simple. As long as the price is above the 250 day moving average of SPY the investment is long, otherwise it is in cash.

The investment in 2001 would have grown 32.38%; the 2006 investment would have gained 5.71%. More sophisticated market timers would have produced much better results.