It's not a matter of timing

“MY brother’s adviser is brilliant,” Jim said to me during a recent conversation about the current state of affairs around the world.

“When the share markets are ready to fall she switches everything into cash, and when they bottom out she puts the money back in. My brother says she’s a genius!”

Uh, oh! The market timing season had arrived; the season when magical market timing experts once again rear their very clever heads. I guessed what was coming next, and it did.

“Others at our club operate in much the same way and do okay. Why don’t you do that, Michael?”

I’ve lost count of the times Jim and I discussed the importance of staying in the share market through the ups and downs, rather than try to buy in at the bottom and sell at the top.

I thought of all the conversations we’d had about sticking to our knitting, and the significance of maintaining a long-term diversified investment strategy through all worldly events, no matter how grave the situation appeared to be.

We had talked about how Jim would need to exercise patience and discipline in the years to come, as he would experience many ups and downs on the long-term investment strategy road.

“We’ve been down this side road a few times Jim, haven’t we?” I replied.

“You know Jim, I have tried but can’t find one practical scrap of evidence anywhere of anyone ever having successfully timed entries and exits out of share markets accurately, consistently, and over a reasonable period of time.

“I can find many studies all confirming the same thing: one would have to be extraordinarily and freakishly lucky to consistently get the timing right when moving out of the market before moving back in at precisely the right time to benefit from most large capital gains, which occur only on a few days.

“Even revered investors such as Warren Buffet and John Templeton have uttered words effectively describing the timing strategy as a mug’s game. Has your brother and other members of the club ever told you of the times when their timing was wrong?”

Jim ignored all of this as he was on a roll, and wasn’t going to be put off by that silly question.

“Well, anyone could have seen the markets were too high last year. You could have switched into cash in November, right at the top of the market, but you missed it, and so did all of the fund managers. So what are you going to do now?

“And while we’re on the subject, what are the fund managers doing to earn the management fees I am currently paying them to lose my money hand over fist every day?” He was pretty fired up at this point.

“Well Jim, unless your circumstances have changed, why change a long-term investment strategy, which was established to help you achieve your stated lump sum and net yearly income objectives?

“Diversifying across asset classes and fund managers is an appropriate way of spreading the risk,” I said.

“Fund managers continue to seek investment opportunities constantly, researching different sectors of the share market, analysing company balance sheets, seeking out opportunities day after day in good times and bad.

“Some share fund managers may seek profitable companies whose shares are cheap, while others may target those with excellent growth prospects, or companies that pay high dividends and carry tax credits.

“Long-term investing requires patience, restraint and focus if outcomes are to be met.

“Jim, no one rings a bell to signal the bottom or the top of the market. Investors are more likely to achieve their objectives by sticking to a long-term strategy, maintaining ‘time in the market’, rather than ‘timing’ the market.”

By this time Jim’s eyes had started to glaze over, and it was clear he was no longer listening.

It brought back memories of my mother. Whenever she was experiencing difficulties in trying to get my father to understand her point of view, which was most of the time, she would say, “I might as well talk to the brick wall, Michael, than talk to your father”.

Jim, by now, even had the same facial expressions as my father, so I guessed I was fighting a losing battle. I could see Jim was already far, far away, three-quarters of the way down the Yellow Brick Road, eyes left and right, looking for the Wizard, who, with a shout of ‘Abracadabra’ and a quick whirl of his magic wand, would fix his portfolio in an instant.

Sadly, I don’t think Jim will be back.

I asked my colleagues if they knew anyone who could consistently and successfully time the market. No one raised their hand. While I still keep hearing stories of these magical, infallible financial wizards, I never get to see or hear one. Almost like the pixies at the bottom of the garden I’ve never seen.

Is it all a fairytale, this market timing stuff, a far away utopia, a kind of make believe, or am I missing something? Are there bona fide market timers out there who really get it right, time after time after time?

I don’t believe there are for a minute, but please put me out of my misery and let me know if you find one.

After all, Jim has seen a whole bunch of them down at his club.