More On The Folly of Market Timing

Quotes

"Despite the enticing appeal of reducing market exposure by astute sales when securities appear to be overpriced, and boldly reinvesting when securities appear to have declined to attractive low levels -- selling high and buying low -- the overwhelming evidence shows that market timing is not an effective way to increase returns for one dour but compelling reason: on average and over time, it does not work. The evidence on investment managers' success with market timing is impressive -- and overwhelmingly negative. One careful study of market timing concluded that an investment manager would have to be right on his market forecast 75 percent of the time for his portfolio just to break even after measuring the costs of mistakes and the costs of transactions. The case for not attempting market timing is partly that the history of many, many investment managers shows that the market does as well when they are heavily in cash as it does when they are fully invested -- and vice versa. Attempts to switch between stocks and bonds, or between stock and cash, in anticipation of market moves have been unsuccessful much more often than they have been successful.
[Charles D. Ellis, How to Win the Loser's Game]

Speculation: The activity of forecasting the psychology of the market. Speculative motive: The object of securing profit from knowing better than the market what the future will bring forth.
[John Maynard Keynes, "The General Theory of Employment, Interest, and Money"]

"We have not proved able to take much advantage of a general systematic movement out of and into ordinary shares as a whole at different phases of the trade cycle....As a result of those experiences I am clear that the idea of wholesale shifts is for various reasons impracticable and indeed undesirable. Most of those who attempt it sell too late and buy too late, and do both too often, incurring heavy expenses and developing too unsettled and speculative a state of mind, which, if it is widespread, has besides the grave social disadvantages of aggravating the scale of fluctuations.
[John Maynard Keynes]

I can list many more but I believe the market pretty much is correctly priced as a whole for all known info. People's sentiment then moves it one way or the other so when people are scared, the market is down and when they are making tons of money and have no fears, the market is up. Predicting sentiment such as this is folly and so I believe it is best to have an asset allocation appropriate for your age and then only make "small moves" around this to satisfy your "animal urges" to market time... And, if you have shown skill at picking stocks when low and selling some when high, then by all means do that which is why I continue.

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