Jeff Macke Is Wrong: You Can’t Time the Market

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Your retirement account is far too important to rely on predictors of the future. There is no substitute for a globally diversified portfolio to reach your long term retirement goals. Any strategy that requires an accurate forecast of the future is destined for failure.

Market Timing is a Loser’s GameMr. Macke, who noted that “trading markets is what I do for a living,” opined that you can time the market. According to him, it’s really simple. All you have to do is use “rudimentary tools like purple crayons and rulers.” That’s good to know. He must be a very wealthy man. If an investor with his skill was able to forecast all the months that the NYSE outperformed T-Bills (which should not be very difficult for a skilled market timer) from 1927 through 1978, an investment of only $1000 would have grown to $5.36 billion!

Market timing newsletters must have run out of purple crayons. A study (PDF) of over 15,000 predictions by 237 market timing investment newsletters over a twelve year period found that almost 95 percent of them had gone out of business. The authors concluded: “There is no evidence that newsletters can time the markets.” Another study featured an interview with Mark Hulbert, who monitors market timing newsletters. Hulbert found that, for the ten year period ending in 1997, all twenty-five newsletters tracked underperformed the S&P 500 index.

Mr. Macke provides no support for his market timing recommendations, which is typical of many in the financial media. There is a lot of data on investing. Before you follow the advice of self-styled investment savants, you should act responsibly and take the time to review it. If you do, you will be persuaded by this observation from legendary investor, Benjamin Graham: “If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what’s going to happen to the stock market.”

There will always be ‘experts’ proclaiming their ability to time the market. Unfortunately these ‘experts’ are never the same person. The reason is no one can predict what the market will do next. Their success is a matter of luck and not skill.

PLease comment or call to discuss how this affects you.

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