Market Timing, Tactical Asset Allocation, And Trading: A Dialogue

Jan. 22, 2019 2:18 PM ET6 Comments


  • Explains the arguments for and against market timing.
  • Applies those arguments to tactical asset allocation.
  • Compares both to stock trading.
  • Looking for more? I update all of my investing ideas and strategies to members of The Stock Evaluator. Start your free trial today »

Here’s a dialogue between two sides of myself: Moses, who’s a proponent of market timing and tactical asset allocation (TAA), and Celeste, who thinks it’s bunk.

Moses: What is the difference between trading, tactical asset allocation, and market timing? In all three cases you’re buying and selling assets that are designed to be held for far longer than the amount of time you’re holding them.

I’m a stock picker. I very rarely hold stocks longer than nine months. I place buy and sell orders every week, sometimes every day. I’ve been able to consistently beat the market, with a CAGR of over 40% for more than three years, by using a ranking system on Portfolio123 to invest in microcaps.

Now if I were to do exactly the same thing with a limited number of ETFs, buying and selling them at different times, I would be doing TAA instead of trading. And if I were to limit myself to just two ETFs, SPY (which tracks the S&P 500) and ICSH (which tracks short-term government bonds), I’d be doing market timing.

So my gut tells me that all those pundits who say that buy-and-hold always beats market timing are the same pundits who say that index funds always beat stock-picking. And if they’re wrong about the latter, why shouldn’t they be wrong about the former?

Celeste: People have been trying to do market timing for over a hundred years and nobody yet has gotten it right. If someone were to get it right, beautifully timing her entrances and exits so as to altogether miss every correction and every bear market but capture entirely every major upswing, she would basically rule the world. Why? Because enough people would follow her lead that she’d be able to effectively manipulate the entire stock market and make more money than anyone

(If you want to evaluate microcaps like Moses does, my Marketplace service The Stock Evaluator is a good place to start.)

This article was written by

Yuval Taylor profile picture
Weekly evaluation of thousands of stocks based on sound financial metrics.

I am the author of Zora and Langston: A Story of Friendship and Betrayal, as well as other books; I am also product manager at Portfolio123, a small financial technology firm. In my spare time I invest, primarily in microcaps; investigate investment conundrums; and write about my investigations on Seeking Alpha and on my blog, I am now offering a subscription service, The Stock Evaluator, which sends out weekly rankings for over 4,000 stocks; you can reach it here:

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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