Market Timing: Knowing How to Get it Wrong

Roger Nusbaum submits: The market is trading like it will never go down again. This is fun to see. I have been wrong about it going down, and I have been thrilled with results of watching client accounts go up in value.

The point here is one I have made countless times in the past: I have devoted far more of my time trying to understand and dissect what could go wrong as opposed to trying to understand what could go right.

Every time I posted expressing concern for the market, I always included that I was not making a big bet against the market. I would describe the steps taken as modestly defensive because, as I concede at every turn, I could be wrong. Being wrong is not a problem. The problem arises from the consequences of being wrong. Had I gone 50% or more to cash, that would have had bad consequences. Had I put 15% in the double short ETF, as opposed to the 4% I allocated, that would have been bad too.

I have had a lot of comments over this rally from people with very large cash positions taken due to concern that the market would go down. There have been follow up comments by people trying to guess when to get back in.

Making big bets makes the job very difficult, because being right is very difficult. There is not much consequence to small bets toward the probability of any outcome. As you manage your own portfolio, you should want a path of lesser resistance. I know I do.

Nothing has changed as far as my outlook: I don't think cycles have been repealed. There will still be corrections and bear markets. This run will end regardless of the timing, and no matter what is going on in the market, studying what can go wrong will make more sense to me that toasting what can go right.