Market Pulse: Most investors worse off timing the market
August 21, 2013
Timer Digest, the leading tracker of market timers, continues to rate me as the best timer over the last 52 weeks.
The reason I say this is to demonstrate that I'm not against market timing. I will raise cash in client portfolios when market conditions worsen.
That said, most investors are worse off by incorporating market timing in their portfolio decisions.
By "market timing" I mean being invested when stocks go up and then exiting the market when stocks go down. That sounds great, but is easier said than done.
Making a good market timing move requires being right two times. One not only has to sell before the market drops further, but also has to buy back in before the market rises above the sell point.
The first decision is relatively easy, but the second decision, getting back in, is difficult.
Few people buy back into the market even when they timed their exit well because market headlines only worsen when stocks go down.
Those that sold near the low rarely buy back in at higher prices because it requires admitting that you were wrong.
We all know people that exited the market in 2008 when stocks were falling only to sit on the sideline when stocks have more than doubled in price.
The problem for most people is that they don't have a market timing plan. They decide to exit stocks when things don't feel right.
Their decision to sell is based purely on emotion. Of course, this only happens after stocks have fallen. No one ever says to sell when stocks are strong!
They may say they'll jump back in when there is less uncertainty, but uncertainty is part of investing.
Two months ago, with the Dow at 15,000, investors loved the market. Now the market is near 15,000 once again but the mood is different.
Should it matter if the market is moving up or down when 15,000 is crossed? This reminds me of John Templeton's observation, "Stock prices are a lot more volatile than stock values."
Keep an eye of the bigger picture.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.