Market Timing is difficult

Some of you may be tempted to think that it is easy to carry out market timing.  They may think that all one has to do is to take an index chart and draw in the trend line, making purchases or sales whenever the market price gets too far from the trend. 

There are, however, two enormous difficultites in trying to make market timing decisions based on past prices.

1.  First, there is the problem of future changes in the companies' business and political environment.

• The world of business is never static.  There will always be changes, some small and some large to the environment which the companies operate in. 
• In order for the stock market to perform as well as it had done in the past, the country must continue to prosper and the political climate has to be stable.  How can we be sure that the future growth trend will be the same as in the past? 
• In order to be a good forecaster, one must have a very good knowledge of economics and political science.  This is hardly a qualification that is within the reach of laymen.  Even with such qualifications, forecasting can still be very difficult.  Professional economists and moneymen can make collective forecasting errors very frequently.

2.  Second, there is the problem of not knowing in advance how far will the market move above or below the trend. 

• As we have seen from past records, the distance the market moved from the trend had been irregular and unpredictable. 
• We can take the 1983, 1987, 1993, 1996 and 2007 booms as examples.  Many professional market-watchers, did not anticipate correctly the heights to which the market went. 
• Similarly, very few market-watchers anticipated the severe market declines of 1973, 1985, 1987, 1997, 2001 and 2008.