Market Timing?

by Mike Holman

I thought I would take a break from the exciting portfolio building series and write about market timing. This post was inspired by one of my favourite Globe & Mail writers, John Heinzl who wrote this morning about market timing and why you shouldn’t do it. Although he manages to contain himself in that article, he has a very funny sarcastic wit – check out his Saturday Stars & Dogs column sometime to see what I mean.

I used to be an avid market timer, when the markets went down I would switch my equity mutual funds to money market. When the market went back up, I would switch back to equity. I realize in retrospect that I probably could have just stayed invested in the money market fund the whole time and achieved the same return with less risk and stress.

Part of my new investment strategy which I’ve been developing over the past year or so is to avoid market timing since I’ve established that I can’t do it successfully. In his article, Heinzl talks about how last June, the markets had tanked and it really looked like a great time to adopt a more defensive portfolio approach but since then the Canadian market has gone up 30% which is an incredible run.

I’m not suggesting the Canadian market will go up another 30% over the next year but Heinzl’s point is that nobody knows what it will do which means that any moves based on predictions are useless.

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{ 2 comments… read them below or add one }

1 The FinancialBlogger

You are right FP. I also read that market timing is related to less than 5% of your overall investment return. 5% of 10%, it definitely not that much!

Market timing is like gambling at the casino or buy penny stock. You just hope you got in (or out) at the right time. In the end, nobody knows what’s going to happen.

However, my bet on the present market is that we will reach a plateau, but I’m not sure it is going to go down. China and Inda still need a lot of resources and Canada is just the right country to be right now!

FB.

2 FourPillars

Thanks for the comment.

I think if you can do it, then market timing could add a lot to your return but I don’t think there is anyone who can time the market consistently over a long period of time.

Mike

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