Friday, 16 November 2012

The Verdict on Market Timing

Over a fifty-four year period, the market has risen in thirty-six years, been even in three years, and declined in only fifteen.

  • Thus, the odds of being successful when you are in cash rather than stocks are almost three to one against you.  
  • An academic study by Professors Richard Woodward and Jess Chua of the University of Calgary shows that holding on to your stocks as long-term investments works better than market timing because your gains from being in stocks during bull markets far outweigh the losses in bear markets.  
  • The professors conclude that a market timer would have to make correct decisions 70 percent of the time to outperform a buy and hold investor. I have never met anyone who can bat 0.700 in calling market turns.

The words of John Bogle, founder of the Vanguard Group of Investment Companies on the subject of market timing.

Bogle said,
"In 30 years in this business, I do not know anybody who has done it successfully and consistently, nor anybody who knows anybody who has done it successfully and consistently.  Indeed, my impression is that trying to do market timing is likely, not only not to add value to your investment program, but to be counterproductive."

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