Recent fits and starts in the stock market prompt us to visit a topic we spent a few pages on in our book but have yet to tackle in a Mind Over Money post. Three topics, really, but we’ll tackle two of them in follow-up posts: Today’s subject is market timing, i.e., pulling money out of stocks when share prices seem poised for a protracted fall (or long sojourn in the doldrums) in the hopes of reinvesting when prospects improve. Great idea — Sell high! Buy low! — except for two points: 1) it’s a fool’s game; and 2) there’s a huge cost to trying.
Allow us to explain. Three quarters of a century’s worth of reliable data has demonstrated that no one can predict, with both accuracy and consistency, which way stock prices are headed. Doesn’t matter whose results you study — hedge fund gurus, mutual fund managers, academic researchers, fortune tellers — they’re all just guessing, in one form or another, and sooner or later their theories or hunches are undone by reality.
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