Turbeda

Does Market Timing Actually Work?

The premise of missing the ten best or the worst is based on a notion of clairvoyance that you could miss just THOSE days. This idea is based on market timing as predictive. To that point, it is a fool's errand. This "missing the ten best" myth has been perpetuated by an industry that is only paid if you stay invested. Wall Street has not figured out how to get paid for sitting in cash.
If you review many of the studies, you do find that many of the "best" days are recovery days following some of the "worst" days. If you were not invested in the worst days you would not need
the best days to earn back what you lost. Losses hurt a portfolio worse than gains because losses and gains do not have a linear relationship. Remember that a 50% loss requires a 100% gain to get back to par. I use two trend following models published in the mid 90's that got you out of the markets in early 2000 and in late 2007. The models did not get you back into the markets until mid 2003 and am still on the sidelines now. Having avoided both 50% bear markets, you do not have to rush to get back in to earn what you have lost. If you want to continue to listen to Wall Street you will continue to be dumb money. - TURBEDA