How Market Timing Destroys Wealth

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So-called “experts” are telling us about the coming uber-bear or why the bull market will continue. Yet the data show that trying to predict the market’s direction to time buys and sells is the wrong approach to investing.

Data from the last seven bear markets show that a large percentage of losses and gains happen in very short periods of time, requiring timers to have uncanny accuracy and resolve. Investors are better served to ignore market calls and follow the time-tested practice of holding well-diversified portfolios that meet their goals across long market cycles.

We are barraged with information about the market and its expected direction. Are we in a bull market or about to enter the worst bear market in history? There is no shortage of opinions, analysis and debate. I enjoy reading some of these analyses. But is it information that investors should use to inform their investment decisions?

The brilliant neurologist, financial advisor to high-net worth individuals, and author of several excellent investment books, William Bernstein, cautions about paying too much attention to stock pickers and market timers in what he refers to as “financial pornography.”

I decided to revisit the research on the track record of market timing and perform my own empirical analysis of data from the last seven bear markets. The results show that market timing is an elusive pursuit.