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Thursday, February 7, 2013

Bad Timing

We have often discussed the pitfalls of market timing in this blog, like here and here.  Clearly, if we could correctly time the market, we would all be fabulously wealthy, which is why it is so tempting. 

Well, now the London School of Economics has done a study which shows, yet again, that getting market timing right consistently is very unlikely.  The Financial Markets Blog at The Economist magazine does an excellent job summarizing this study. Here is an excerpt from that blog post:
"So the professors used a market-timing model based on information that investors would have known at the time, starting back in 1920. The model required investors to sell equities and out the proceeds in cash, every time that future real returns looked low. Sadly, this model was a complete flop; in every single market (out of 20), the approach generated a lower return than investors would have achieved had they just used a buy-and-hold strategy and stuck with equities.
Ah well. It is perhaps inevitable that there is no easy way to time the market; otherwise, it would have been discovered, exploited and eliminated before now."
Guess that about sums it up. ~FSB