IFA
Index Porfolio 90
IFA
Index Porfolio 70
IFA
Index Porfolio 50
IFA
Index Porfolio 30
IFA
Index Porfolio 10
Step 4 - Time Pickers
Accept that no one can pick the right time to be in or out of the market
When 32 market-timing newsletters were compared to the S&P 500 Index over a 10-year period, not one of them bested the broad market index. The primary reason for this inability to time the market is the high concentration of returns and losses that occur each year in just a few days. In a recent 10-year period, 100% of the total stock market gain occurred over just 20 days. It is impossible to predict such short periods in advance. Professors studied 15,000 predictions by 237 market timers and concluded that, "There is no evidence that [market timing] newsletters can time the market."
Time pickers mistakenly believe they can predict the direction of the market. They attempt to be invested in stocks when the market is going up, and shelter investments in cash, treasury bills or bonds when the market is going down. While market timing sounds like a good idea, important peer-reviewed studies and research reveal that market timing is not only very costly, but fruitless. The definitive study of time pickers was conducted by John Graham at the University of Utah and Campbell Harvey at Duke University who together painstakingly analyzed over 15,000 predictions by 237 market-timing investment newsletters from June, 1980 through December, 1992. By the end of the 12-year period, 94.5% of the newsletters had gone out of business, with an average length of operations of about four years! The conclusion of their 51-page study concluded, “There is no evidence that newsletters can time the market. Consistent with mutual fund studies, ‘winners’ rarely win again and ‘losers’ often lose again.” |
Jeffrey Lauderman wrote
a BusinessWeek article dispelling the myth of market timing,
which he called a “perilous ploy and a guessing game.” His
1998 analysis included an interview with Mark Hulbert, who
monitors the time pickers’ recommendations. Hulbert’s conclusion
provided a knockout blow to all 32 newsletters he tracked.
Not one of the timing newsletters beat the market. For the
10-year period from 1988 to 1997, the time pickers’ average
annual return was 11.06%, while the S&P 500 stock index earned
18.06% annually and the Wilshire 5000 earned 17.57% annually.
The figure below tells the story. |
Additional Charts and Graph from Step 4
 Devouring the News |
 Active Investor's Only Hope |
| < Step 3 - Stock Pickers | Step 5: Manager Pickers> |