I recently wrote a Guest Blog Entry for the Money and Such blog entitled Why Long-Term Timing Works Even Though Short-Term Timing Doesn’t.
Juicy Excerpt: It turns out that those studies were misinterpreted. I mentioned that there are hundreds of studies showing that timing doesn’t work. Do you know how many of those studies examine whether long-term timing works or not? The answer is — not one of them. All of the studies showing that timing doesn’t work examine short-term timing; they look at whether changing one’s stock allocation in response to price changes pays off in six months or a year or perhaps two years. These studies are silent on the question of whether long-term timing works (long-term timing is changing your stock allocation in response to big price changes with the understanding that you may not see benefits for doing so for five or perhaps even ten years). Given that the studies are silent, I believe that we should default to our common-sense take that timing MUST work (for the reasons explained at the top of the blog entry).
Frank Curmudgeon (author of the Bad Money Advice blog) is not so sure.
Juicy Excerpt: Yes, over the short term irrationality dominates the economic truth, but the long term is made up of many shorter periods.