March 17, 2021

On Market Timing

Very often we hear and read comments on the necessity to engage in excessive  or radical market timing.

Some old truths  :

A) ‘‘The graveyards of stock market participants is full of market timers ‘.’

B) “Sell Rosh Hashanah buy Yom Kippur”

We are at Yom Kippur. Therefore should be buying….

The old Wall Street quotation implies seasonality.

This again implies that market participants have not noticed this seasonality  and have not sold in early September, then August, then July etc trying to anticipate.

Personally, I doubt it. Markets have ADAPTIVE  efficiency.

C) There are plenty of seasonal or presumed election related statistics.

We live in a world where  factors affecting markets change continuously and simultaneously. It is very difficult to decompose specific effects when all these factors change in different directions.

D) The 5 to 6 pct Risk premium of equities is captured by disciplined investors having a strong risk tolerance (strong stomach) and clear strategic ( not tactical) thoughts.

E) Have  never seen in many decades of personal experience frightened sellers buying lower ! They will be out of the market when the sudden recovery takes place ! 

F) Have seen many market timers being lucky and being in the spotlight for a short period. Then they disappeared into oblivion. The recent recommendations by renowned investors and Wall Street Investment Banks reinforce the difficulty of forecasting short term.

As a joke : Some gorillas flipping coins might be right in guessing correctly 4 times in a row. They will be 6.25 pct of all gorillas. This will not make them better suited for the next guess.

There are some notable exceptions through history. Certainly  Μr X   is not one of them. A non existant participant in markets and a mediocre economist. Just Good public relations…

Personal conclusion : Some market timing of the order of 20 pct can  and perhaps should take place. Moreover it is fun trying to outguess the others. Indeed, sometimes the consensus is wrong or exhibits behavioral biases. 

It does not happen very often….

Best wishes,

NR

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