More Proof Market Timing Can’t Work

Religion, politics and, apparently, market timing…

These are topics you shouldn’t discuss in polite company, because EVERYONE has an opinion.

Unfortunately, I have never been involved with polite company so I will proceed to offend some with this statement:
Market timing can not work.
This video here is all the proof you need. If you watch you’ll note the guy is essentially calling the bottom in April, 2008. He is saying that other strategies called false bottoms before this and they missed the markets dropping even more.

The problem, of course, is that April, 2008 was nowhere CLOSE to the bottom. March 9th of 2009 was the bottom when the SP 500 dropped to below 700. April 2008 the S&P 500 was in the 1300s.

Here’s the thing; On the exact day when this guy was doing his video, he had no clue the course of history that was about to unfold.

From Wikipedia:

July 11, 2008: IndyMac failed.
July 30, 2008: The Housing and Economic Recovery Act of 2008 was enacted.
September 7, 2008: Fannie Mae and Freddie Mac were taken over by the federal government.
September 15, 2008: Lehman Brothers went bankrupt after the Federal Reserve declined to guarantee its loans, causing the Dow Jones to drop 504 points, its worst decline in seven years. The same day, Bank of America purchased Merrill Lynch.
September 16, 2008: The Federal Reserve took over American International Group. The Reserve Primary Fund “broke the buck” as a result of massive withdrawals from money market accounts.
September 21, 2008: Goldman Sachs and Morgan Stanley converted themselves from investment banks to bank holding companies to increase their protection by the Federal Reserve.
September 26, 2008: Washington Mutual went bankrupt after a bank run.
September 29, 2008: The House of Representatives rejected the Emergency Economic Stabilization Act of 2008instituting the $700 billion Troubled Asset Relief Program. In response the Dow Jones dropped 770 points, its largest single-day decline.
October 3, 2008: Congress passed the Emergency Economic Stabilization Act of 2008.
November 25, 2008: The Term Asset-Backed Securities Loan Facility was announced.
December 16, 2008: The federal funds rate was lowered to zero percent.
How in the world could one’s market timing predict this?

Of course, it can’t! And thus, the reason market timing can not work. It does not know future events that will alter the course of history.

All the back-testing in the world can not square this circle. And this goes back to the Efficient Market Hypothesis. All the information that is available is out there for everyone to see…today. Thus the market is quite efficient at determining value given the information we all have…today.

But we have NO knowledge of the future so to invest based on timing is simply to speculate that X will happen and not Y. Can you be successful as a speculator? Sure. You can also be successful winning the lottery. People do this all the time. Of course, most don’t. Which is why you can’t do retirement planning based on speculation. What if you’re wrong?

Now, what has worked, of course, is good ole fashioned, boring, plain Jane, Buy and Hold. Why?

July 1970, the month of my birth.
S&P Closing: 75.72
Dividend: 3.18
Earnings: 5.47

Dec 2018, after a bear market by the way.
Price: 2567.31

Dividend: 53.75

Earnings: 132.39

Source of this data is from Yale’s Robert Shiller. You may have heard of him, a time or million.

What we see is the steady rise in earnings and actual dividend payout which of course leads to increasing prices.

Now, one could say this is speculation too. As we simply don’t know if the capital markets will even exist 50 years from today. Maybe the Commies will succeed in their goal of world domination after all.

For me though, I’ll speculate on capitalism, the greatest source of wealth creation for the largest number of people the world has ever seen. Unfortunately, I’ll have to ride out some scary times, like we have seen time and again.

But until the modern day Che Guevara puts me up against the wall, I bet on capitalism and thus will buy, and hold.

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