Market Timing Is Necessary for Good Results

October 26, 2004

Everybody here probably knows this, but just to give some facts:

Stock market "gurus" often say that "the market" returns 10% per year, but they do not mention that there have been significant drawdowns, nor do they necessarily define "the market"

S&P as represented by VFINX with distributions reinvested had, since 1994, a 10.2% return with a 47.5% drawdown

NASDAQ index had, since 1994, an 8.8% return with a 77.9% drawdown

Russell 2000 index had, since 1994, a 7.7% return with a 46.0% drawdown

Of the three things mentioned above, only the Russell 2000 is in positive territory since 5 years ago.

Now here some strange things:

Some people who believe in buy and hold for index funds say that they do it because then they do not have to worry.  Motley Fool characterizes index funds as "low stress."  What are they smoking?

In spite of the obvious desirability of market timing, people view it as an impossibility rather than a problem to be solved.

The timing systems developed on FT-Talk, TimingCube, and others are not infallible, and often have losing trades.  However over time, they beat buy and hold by a wide margin.

My conclusion is that some people (e. g. fund managers) have conflicts of interest, and others (e. g. investors) are just lazy, gullible, and indecisive. Also, some people do not like to make any decisions.  There is a religious element in some people's opposition to market timing - how else to explain a belief that so goes against the facts?