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Misconceptions: Market Timing verse Stock Picking - Page 2

© Kirk Lindstrom

I look at the resurgence of market timers as the human weakness to pay for "hopes and dreams." We see informercials on television for black paint hair spray that "cures baldness" and cosmetics counters are filled around the globe with magic creams and oils that "restore youth" to billions of women who want to look young again. Market timing is just more snake oil.

Tips!

What I really believe market timers are selling to is the human desire for "tips." Edwin Lefevre wrote in Reminiscences of a Stock Operator:

"TIPS! How people want tips! They crave not only to get them but to give them. There is greed involved, and vanity. It is very amusing, at times, to watch really intelligent people fish for them. And the tip-giver need not hesitate about the quality, for the tip-seeker is not really after good tips, but any tip. If it makes good, fine! If it doesn't, better luck with the next.

If the tip doesn't work out, then they move on to the next mailing and send out a new round of tips. One "tipster" writes a "technology stock newsletter" where Mark Hulbert has the guys picks under performing money market with a 0.5% annual return for the last fifteen years! Hard to believe anyone can make a living in a bull market telling readers what stocks to buy which lose money! Yet the author is "well respected" and I often get email and regular mailings from the guy with notes saying why these three or four stocks are so important to buy or sell. People want tips even if the tipster is proven to be lousy.

Stock Picking is NOT market timing

Benjamin Graham and Warren Buffett are STOCK PICKERS, not market timers. Even Bogle will give you that something like 20% of stock pickers beat the market over a decade or two and 10% do it over a very, very long time. Bogle's main point is beating the market is not easy and most can't do it even as a full time job so the average investor should not try and just buy index funds.

The Key is that some do beat the market on a regular basis when they pay attention to value. Most value investors cite Benjamin Graham's "The Intelligent Investor" as a classic on value investing. Warren Buffet actually wrote the introduction and appendix for my copy. Graham writes in chapter 8, paragraph 4:

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