You Can’t Time The Market?

Since the markets were closed on Monday, there really isn’t much to update from this past weekend’s newsletter. The markets remain clearly and undeniably overbought and the risk of a short-term correction outweighs the potential for reward.

My blogs and newsletters regularly generate responses from those whom, most likely, have never witnessed the damage caused by a “mean reverting event” in the markets. Like this one:

“I just bought more equities and am now 100% invested. I don’t really care about corrections, because I am invested primarily in high yield investments. Sure, the market might correct a little, buy since you can’t time the market, over the long-term I will be fine.”

In the end, they will care about corrections and the “chase for yield” will end as badly as every other bubble throughout history. But I have written plenty about that in the past.

It is the “you can’t time the market” part of the email that I want to address today.

The Market Timing Myth

Back in 2010, Brett Arends wrote: “The Market Timing Myth” which primarily focused on several points that I have been making for years. Brett really hits home with the following statement:

“For years, the investment industry has tried to scare clients into staying fully invested in the stock market at all times, no matter how high stocks go or what’s going on in the economy. ‘You can’t time the market,’ they warn. ‘Studies show that market timing doesn’t work.’

He goes on:

“They’ll cite studies showing that over the long-term investors made most of their money from just a handful of big one-day gains. In other words, if you miss those days, you’ll earn bupkis. And as no one can predict when those few, big jumps are going to occur, it’s best to stay fully invested at all times. So just give them your money… lie back, and think of the efficient market hypothesis. You’ll hear this in broker’s offices everywhere. And it sounds very compelling.

There’s just one problem. It’s hooey.

They’re leaving out more than half the story.

And what they’re not telling you makes a real difference to whether you should invest, when and how.”