Market Timing Based On Long Term Views Does Work: Just know the valuation level you are starting from

Stock Market Strategy: Market Timing Based On Long Term Views

Short-term timing does not work because stock prices are determined by investor emotions in the short term.


If that’s the case, then short term timing and trading the market would not work because there is no way to outguess an entirely emotional process. All the intelligence in the world gives you no edge in trying to anticipate emotional choices.


This leads us to the explanation that long-term timing DOES work. The market MUST set prices properly in the long term. If prices can be wildly wrong in the short term but must be roughly right in the long term, it should be possible to know in advance which way prices are headed (in the long term only, not in the short term) just by knowing the valuation level you are starting from.

Researchers have checked the historical data. This explanation, unlike the EMT-based one, stands up to scrutiny. The same data that taught us that short-term timing never works also teaches us that long-term timing always works. Thus — it turns out that just about everything that the experts have told us about investing in the stock market over the past 30 years is wrong. Oh, my.

I believe that long-term timing works. If you change your stock allocation in response to big changes in prices, you can earn dramatically higher returns while taking on dramatically less risk. Do this throughout your investing lifetime and you can retire five years sooner than you previously thought possible.

The old model for understanding how stock investing works is in the process of collapsing. The new model for understanding how stock investing works is in the process of being built. As investors, we live in exciting times!

http://thesmarterwallet.com/2010/stock-market-strategy-market-timing-long-term/

http://knol.google.com/k/why-buy-and-hold-investing-can-never-work#