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Tuesday, November 04, 2008

Market Timing: Is It Impossible?

In the comments section of Honeybee's Bob Brinker Beehive Buzz article "Bob Brinker's Moneytalk: Sunday, November 2, 2008 Update," JeffChristie said...
Dan, I are not saying that market timing can't be done. I are saying that it can't be done consistently. As John Bogle has said in his 50 plus years on wall street he doesn't know anyone who knows of anyone who has done it consistently.
Here is the quote Jeff refers to.
The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly fifty years in this business, I do not know of anybody who has done it successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently. Yet market timing appears to be increasingly embraced by mutual fund investors and the professional managers of fund portfolios alike.
[John C. Bogle in Common Sense on Mutual Funds: , pg 20]
I replied:
I wonder if Jack would modify that now that we know Warren Buffett kept his "personal funds" in US Treasuries from the late 1990s until the market fell to the 800s. Stocks were flat over that period (with dividends) while his treasuries probably gained over 50%. Unlike Brinker, Mr Buffett missed the internet/telecom and housing bubbles while sitting safely in US Treasuries.

I now believe a very select few can time the market and have done so with impressive results but Bob Brinker is not on that list. (Note, I have not said the evidence is strong enough to convince me to attempt timing with more than about 5% of my total portfolio... but never say never!)

BTW, Sy Harding's STS has had some impressive results also. Out around 1400 and in at 939 while Brinker was fully invested... wow!

See Sy Harding's MACD Seasonal Buy Signal for details and a chart.
Click chart courtesy of to see full size image

This is how I look at attempts to time the stock market:
”....there are confident ones; they move from ninety-ten (90:10) in stocks-bonds to five-ninety-five (5:95) in stocks-bonds. That implies a degree of self-confidence bordering on hubris and self-deception. Over the decades, when both groups...have equal limited (!) ability to "time," the cautious chaps who alternate between sixty-five-thirty-five in stocks-bonds (63:35) and sixty-forty (60:40) are likely to end up with a superior risk-corrected total return score.
[Paul Samuelson, "Journal of Portfolio Management," Fall 1994]
Due to my age, I like 70:30 (equities:fixed income) with a 5% variation. Your mileage will vary.

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