I’ve posted Column Entry #35 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called Why Stock Market Timing Scares Us.
Juicy Excerpt: Market timing is the answer. For those of us willing to engage in market timing, stock returns are highly predictable and thus stocks are a high-return/low-risk asset class.
But most of us are not today willing to do this. Most of us disdain market timing.
Huh? We have available to us a means of investing in stocks that offers much higher returns at greatly diminished risk and we are not interested? How could this be so?
Market timing scares us.
There are 10 reasons.
Drip Guy says
Your blog entry wrongly claims that timing the market is safe, and the best approach for Joe Average investor looking for a secure retirement.
Have you ever actually timed the stock market yourself, Rob?
I mean at least a round trip or two — buying and selling stocks, based on your timing scheme?
Because from all information you have heretofore providing publicly, you certainly have not had the intestinal fortitude to do so.
Instead, it would appear that you were frightened out of stocks a decade ago when you finally had a momentary insight into what people had already been trying to tell you about Trinity on Motley Fool, and your knee jerk emotional response was to flee with your $400K for a family of four to 100% TIPS and have never moved from that allocation since.
Rob, if I am wrong on *any* of that, PLEASE, do correct the record!
Otherwise, you just keep adding proof of your own mendacity.
Rob says
Thanks for stopping by, Drip Guy — I think!
The emotion you feel about stock investing comes through in every word of your comment, Drip Guy. I am not your enemy. I am your friend. You need to take a step back, take a deep breath, and try to think things through a bit. Okay, friend?
We have 140 years of historical data on how the U.S. stock market performs. The entire 140 years of data teaches two lessons over and over again: (1) Buy-and-Hold/Get Rich Quick never works for the long-term investor; and (2) Long-term timing (taking price into consideration when setting your stock allocation) always brings far higher returns at far less risk.
Now —
If it was only the data saying that, I might have some doubts. We need to go deeper. We need to ask ourselves why the data says what is says.
The answer is — Long-term market timing is paying attention to price. How could that ever not work? Conversely, how could the opposite strategy (not paying attention to price but instead sticking with the same stock allocation at all times — Buy-and-Hold) ever work? It cannot. Failing to take price into consideration when deciding on a stock allocation is a fatal error.
I’m not God, Drip Guy. I never went to Investing School. I never managed a big fund. They don’t have me on the TV shows or put my picture on the cover of Money magazine. You are free to ignore every word I say. It could be I am wrong. It has been known to happen. It’s your money and you have a responsibility to do with it what you think best.
The words I put forward above and the words that I put to every article at the site are words expressing what I believe. Nothing more and nothing less.
You wouldn’t want me endorsing Buy-and-Hold given that I believe that it is the purest and most dangerous Get Rich Quick investing scheme ever concocted by the mind of mortal man, would you?
Would you?
Rob
Investing for the Long Term says
Rob
Drip Guy asked you a simple enough question –
“Have you ever actually timed the stock market yourself, Rob? I mean at least a round trip or two — buying and selling stocks, based on your timing scheme?”
Why do you refuse to answer?
Rob says
My response tells Drip Guy all that he needs to know, Investing for the Long Term.
I pointed out the emotion issue. He needs to focus in on that. When he deals with the emotion issue, he will hear the answer that today he cannot hear.
Have you ever set your hair on fire, Investing?
It’s a silly question, right?
Well, so is asking someone whether they ever bought stocks without taking price into consideration.
I am well aware that The Stock-Selling Industry has been spending hundreds of millions of dollars trying to persuade me to do just that. I’m just not too keen on the idea of buying into all the marketing mumbo-jumbo.
I’m an historical data/academic research guy, Investing. Sue me.
Rob