Educating on Market Timing

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leonard
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Educating on Market Timing

Post by leonard » Wed Feb 06, 2008 2:52 pm

For those that don't believe Market Timing works, what motivates you to keep engaging in educating new posters on Market timing?

I am finding all of these market timing posts are getting very, very old. They are all something like:

"I know (generally) bogleheads don't recommend market timing, but do you think I should market time asset class X, because of Y?"

Seriously, if we had a discussion on the street with someone who claimed to be able to predict the future, most of us would file that under tarot cards, ouija boards, and crystal balls. We probably would not actually try to fashion rational arguments to convince someone they can't predict the future, as it likely wouldn't work. How do you convince someone they are wrong, if they can predict the future and you can't?

I am starting to feel that arguing against Market Timing is as futile as Market Timing itself.

I am just going to start skipping these posts. What will you do?
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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Taylor Larimore
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Market Timing Posts?

Post by Taylor Larimore » Wed Feb 06, 2008 3:23 pm

Hi Leonard:
For those that don't believe Market Timing works, what motivates you to keep engaging in educating new posters on Market timing?

I post on this forum to help others and learn (in that order). If we are interested in helping new investors reach their goals, we should warn them about the futility of market timing.
"I am starting to feel that arguing against Market Timing is as futile as Market Timing itself."
I once believed in market timing. My own dismal experience and books like Professer Malkiel's "Random Walk Down Wall Street" and Mr. Bogle's, "Bogle on Mutual Funds," finally got through my thick skill that I was playing a "Loser's Game."

I wish we had this forum and its helpful participants long ago so I would not have to learn the hard way. I am confident most new investors appreciate our efforts.

Best wishes.
Taylor

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Re: Educating on Market Timing

Post by bob90245 » Wed Feb 06, 2008 3:27 pm

leonard wrote:For those that don't believe Market Timing works, what motivates you to keep engaging in educating new posters on Market timing?
Because new posters came here to learn? :?

That's the sarcastic answer. The real answer is, as I am sure you know, there is an awful lot of media hype on what the markets are going to do, the state of the economy, etc. New investors may not have developed the discipline to tune out the noise or have developed their long-term plan based on their goals and tolerance for risk. Just reading a book may not be enough. And so they want a little hand-holding from Bogleheads who the new person likely feels are more experienced.

That's the long and truthful answer.

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Post by woof755 » Wed Feb 06, 2008 5:32 pm

Leonard, though I agree with Taylor and Bob, I do share your confusion.

It seems odd when someone comes on board with "At the risk of sounding like I'm not the 100% Boglehead Vanguard Diehard Buy and Hold Stay the Course investor that I really am, I am interested in the forum's opinion of moving my entire portfolio to Prime MM fund until this current mess works itself out."

The psychology of investing. Maybe we all just need to be "talked down from the tree" once in a while. Fair enough!
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

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Post by norak » Wed Feb 06, 2008 8:52 pm

Market timing can work, but you need to have special information. Otherwise, the market will correct and you'll make nothing. Beating the market is possible in theory, but in practice it involves knowing too much, so marketing timing is not really worth the time.
"Divide what you have into seven parts, or even into eight, because you don't know what disaster may happen on earth." Ecclesiastes 11:2

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Post by woof755 » Wed Feb 06, 2008 9:17 pm

norak wrote:Market timing can work, but you need to have special information. Otherwise, the market will correct and you'll make nothing. Beating the market is possible in theory...
I'll venture to say that 90% of this board (more?) absolutely disagree.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

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Re: Educating on Market Timing

Post by bottlecap » Wed Feb 06, 2008 9:50 pm

leonard wrote:I am finding all of these market timing posts are getting very, very old ...

I am just going to start skipping these posts. What will you do?
Yeah, they get a little old sometimes, but they're pretty important to answer. That's the good thing about having so many posters here - you don't have to respond to every one.

I typically scan these posts and briefly read the responses, assured that others here are dispensing advice that I wish I had received before I began investing. Some of these folks may actually listen, read, and research - ultimately avoiding such counterproductive pursuits as market-timing and individual stock-picking.

You also have to remember the Money magazine article has sent a lot of people over here, so the Bogleheads are working overtime to address new posters.

JT

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Post by leonard » Thu Feb 07, 2008 12:53 pm

There is another aspect to many of the market timing posts that rubs me the wrong way. Many display a good deal of arrogance and hubris. Despite the reasoned arguments and findings of research on market timing presented to them, they persist in thinking they can time the market. Their insight is better than market participants, they are smarter than everyone else, etc. This comes across as extremely arrogant. This arrogance is another element of these market timing posts that makes me not want to help them.

thanks everyone.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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Replying to Market Timers ?

Post by Taylor Larimore » Thu Feb 07, 2008 1:34 pm

Hi Leonard:
This arrogance is another element of these market timing posts that makes me not want to help them.


I believe there are two main types of Market Timing posts.

1. New Investors who can reasonably feel that market timing makes sense and don't know any better.

I am sure you will agree that these uninformed investors need help and deserve evidence.

2. Older investors who believe, despite overwhelming evidence, that they can outperform by using market timing.

These investors may not benefit from anything we say. They may have had a lucky experience. Nevertheless, to let misleading statements go unchallanged is dangerous for others who read and lurk on forums.

Best wishes
Taylor

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Post by leonard » Thu Feb 07, 2008 1:46 pm

Thanks Taylor.

I think I could benefit from taking your more even handed approach to addressing the tough issues on the forum, market timing being one of the harder ones. On these issues, people are probably persuaded as much by the presentation of the facts, as the facts themselves.

I clearly agree that new investors benefit from the forum process.

Perhaps I need to take the challenge on myself to identify those that can really benefit from getting the facts on Market Timing versus those that simply think they are right, no matter what they read on the forum. It's that second class of posters that get under my skin.

Again, thank you for your patience, with the market timers and with me :D .
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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Re: Educating on Market Timing

Post by NoMoreInvestingExcitement » Thu Feb 07, 2008 2:05 pm

bottlecap wrote:Yeah, they get a little old sometimes, but they're pretty important to answer.
I know what you mean, and, um, I feel the collective Diehard "pain."

I believe, however, that no matter how thoroughly and repeatedly the helpful and knowledgeable folks on this board make cogent arguments against market timing in response to the posts at issue ... they will just keep coming.

Market timing is too alluring, too ubiquitous in the popular press, too "potentially alchemical," and too sexy ... to, IMHO, ever be stamped out of existence by we, the faithful.

Does that mean I won't continue to attempt to dissuade those who ask? No, of course not ... at least with respect to those questioners who appear to be "on the level" and not just trying to "stir the pot."

To me, the main purposes of the forum are to help and to learn ... so, I say let's continue trying to save the ones we can save. That's all we can do. I sure know reading the forum helped me when I was lost.

I should have checked for this before posting, but if there isn't already something in the library re: "the futility of market timing," maybe that could be arranged. That way, we could all refer new questioners on this topic to a standard reference and tell them to come back with further specific questions, if necessary.
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Re: Educating on Market Timing

Post by bob90245 » Thu Feb 07, 2008 3:58 pm

NoMoreInvestingExcitement wrote:I should have checked for this before posting, but if there isn't already something in the library re: "the futility of market timing," maybe that could be arranged. That way, we could all refer new questioners on this topic to a standard reference and tell them to come back with further specific questions, if necessary.

I looked in the Reference Library and didn't see a thread devoted to "the futility of market timing". The closest was a thread on "Active vs. Passive Investing". But that didn't really touch on market timing; it was mostly index funds versus managed funds.

Look, I doubt there will be a paper that can fully satisfy your requirement. Someone will always find something that makes market timing plausible. For example, Marketwatch.com columnist, Mark Hulbert, follows dozens of market timing newsletters. And he will readily admit that most market timers underperform buy-and-hold. But then he writes about a subset of market timers who he says seem to know what they're doing and has a better than average record. It makes for compelling reading but who knows if Hulbert has found the "Holy Grail".

In the end, it just comes down to persuasive logic. The best that I've come up with goes like this:
  • Over the course of one's investing lifetime, there will several bull-bear cycles. Getting out near the top and in near the bottom will be very tricky the first time, extremely difficult a second time and good luck getting it right throughout your investing lifetime.

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Re: Educating on Market Timing

Post by NoMoreInvestingExcitement » Thu Feb 07, 2008 6:46 pm

bob90245 wrote:
NoMoreInvestingExcitement wrote:I should have checked for this before posting, but if there isn't already something in the library re: "the futility of market timing," maybe that could be arranged. That way, we could all refer new questioners on this topic to a standard reference and tell them to come back with further specific questions, if necessary.

I looked in the Reference Library and didn't see a thread devoted to "the futility of market timing". The closest was a thread on "Active vs. Passive Investing". But that didn't really touch on market timing; it was mostly index funds versus managed funds.

Look, I doubt there will be a paper that can fully satisfy your requirement. Someone will always find something that makes market timing plausible. For example, Marketwatch.com columnist, Mark Hulbert, follows dozens of market timing newsletters. And he will readily admit that most market timers underperform buy-and-hold. But then he writes about a subset of market timers who he says seem to know what they're doing and has a better than average record. It makes for compelling reading but who knows if Hulbert has found the "Holy Grail".

In the end, it just comes down to persuasive logic. The best that I've come up with goes like this:
  • Over the course of one's investing lifetime, there will several bull-bear cycles. Getting out near the top and in near the bottom will be very tricky the first time, extremely difficult a second time and good luck getting it right throughout your investing lifetime.
Oh, I realize of course that there isn't going to be one source which we can point to in order to dissuade would-be market timers.

But maybe a compilation of relevant threads could be listed in the library under some heading like I suggested (or maybe "Why Diehards Don't Attempt To Time The Market"). That way, much of the repetition that was the subject of the OP could be handled initially with a referral to the library along with an invitation to re-post if necessary.

Just a thought...
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Educating on Market Timing

Post by retired at 48 » Thu Feb 07, 2008 7:23 pm

I just made a recent posting #12649 titled:

First time Poster’s IRA @ $1,000,000: Shares Wisdom Learned

One point of wisdom was that at no time in my 40 years of investing was I ever out of the market. All fund changes were same day. I personally support, and all studies support, that market timing does not work. The reasons are almost too lenghty to list...and I'm a contrarian investor and person!

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Re: Educating on Market Timing

Post by bob90245 » Thu Feb 07, 2008 7:25 pm

NoMoreInvestingExcitement wrote:Oh, I realize of course that there isn't going to be one source which we can point to in order to dissuade would-be market timers.

But maybe a compilation of relevant threads could be listed in the library under some heading like I suggested (or maybe "Why Diehards Don't Attempt To Time The Market"). That way, much of the repetition that was the subject of the OP could be handled initially with a referral to the library along with an invitation to re-post if necessary.

Just a thought...
Sure. I'll make a suggestion to the librarians (and anyone else who wishes to contribute).

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Re: Educating on Market Timing

Post by NoMoreInvestingExcitement » Thu Feb 07, 2008 7:48 pm

retired at 48 wrote:I just made a recent posting #12649 titled:

First time Poster’s IRA @ $1,000,000: Shares Wisdom Learned

One point of wisdom was that at no time in my 40 years of investing was I ever out of the market. All fund changes were same day. I personally support, and all studies support, that market timing does not work. The reasons are almost too lenghty to list...and I'm a contrarian investor and person!
Thanks for the synopsis of your previous post ... I will check it out (haven't had as much time as usual today to devote to "Diehardism").

And I'm with you 100% on not wasting time, energy, emotion and $ on trying to time the market. And I also agree that many studies "support" our conclusions.

Unfortunately, Bob90245's comment (to paraphrase) that there will always be people out there pushing market timing as the way to achieve wealth is likely true as well ... and it's for the reasons I listed in my first post on this thread. And so it follows that there will always be new investors (or even not so new investors) who think market timing might be their path to riches.

The studies we look to for "support" of our investment strategy just aren't "good enough" at first blush for folks hypnotized by the possibility of successfully timing the market. We'd need the legal equivalent of a study showing "with proof beyond a reasonable doubt" that market timing is dead bang loser not just most of the time but 999 times out of 1,000 times in order for market timing posts to dry up here (and perhaps even THAT wouldn't be enough for some). And since investing and markets just aren't amenable to that sort of precise analysis, we should be reconciled to the fact that the sorts of posts described by the OP are going to continue.

Hence, my suggestion about using the library as a point of first reference for well meaning folks visiting us for the first time and who are curious about the Diehard take on market timing.

Thanks,
NMIE
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Post by baw703916 » Fri Feb 08, 2008 1:18 am

A basic question: What is market timing?

It seems like it can denote a very broad range of things, so maybe if we can agree on a definition, it would help to clarify the discussion.

One example: William Bernstein has suggested that a reasonable thing to do in response to large swings in relative valuations of different asset classes is to shift one's allocation slightly in the opposite direction. He points out that this is just a slightly more aggressive aggressive form of rebalancing.

So is this market timing? Are all forms of "value informed investing" (I suppose we need to agree on what that term means!) market timing? For example, if someone decided not to buy REITs the last couple of years based on their dramatic increase in valuations and on the perception of a real estate bubble, are they a market timer?

Best wishes,
Brad
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Definition of market timing?

Post by Taylor Larimore » Fri Feb 08, 2008 11:48 am

A basic question: What is market timing?
There are many definitions. My favorite:

"Market Timing is making portfolio changes based on market forecasts."

Best wishes.
Taylor

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Re: Definition of market timing?

Post by NoMoreInvestingExcitement » Fri Feb 08, 2008 2:00 pm

Taylor Larimore wrote:
A basic question: What is market timing?
There are many definitions. My favorite:

"Market Timing is making portfolio changes based on market forecasts."

Best wishes.
Taylor
OK, Taylor ... I just "wasted" about 20 minutes trying to find an authoritative quote defining market timing in a more concise and clear manner than yours. You win! :wink:

Is it "yours"?

Just reading it makes one cringe, doesn't it!?

Maybe the reference library compilation suggested above can help address, at least in first instance, OP's concerns.

Thanks,
NMIE
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Is it my definition?

Post by Taylor Larimore » Fri Feb 08, 2008 2:10 pm

OK, Taylor ... I just "wasted" about 20 minutes trying to find an authoritative quote defining market timing in a more concise and clear manner than yours. You win!

Is it "yours"?
Yes, I made it up. However, it is so logical that I would not be surprised to learn others have said the same thing.

Best wishes.
Taylor

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Re: Is it my definition?

Post by baw703916 » Fri Feb 08, 2008 4:10 pm

Taylor Larimore wrote:
OK, Taylor ... I just "wasted" about 20 minutes trying to find an authoritative quote defining market timing in a more concise and clear manner than yours. You win!

Is it "yours"?
Yes, I made it up. However, it is so logical that I would not be surprised to learn others have said the same thing.

Best wishes.
Taylor
Whether or not someone else thought of it also, I really like the definition. Thanks for sharing it!

Brad
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Re: Definition of market timing?

Post by timid investor » Tue Feb 12, 2008 6:56 pm

Taylor Larimore wrote:
A basic question: What is market timing?
There are many definitions. My favorite:

"Market Timing is making portfolio changes based on market forecasts."

Best wishes.
Taylor
My question is: How many bogleheads consider "buying the dips" market timing?

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Re: Definition of market timing?

Post by NoMoreInvestingExcitement » Tue Feb 12, 2008 7:05 pm

timid investor wrote:
Taylor Larimore wrote:
A basic question: What is market timing?
There are many definitions. My favorite:

"Market Timing is making portfolio changes based on market forecasts."

Best wishes.
Taylor
My question is: How many bogleheads consider "buying the dips" market timing?
Not a bad inquiry ... but this thread has probably kind of "dried up" by now. I still had my "email notification" on so I saw your post, but if you really want an answer to that then a fresh post is probably needed. (I'd be curious to see myself).

NMIE
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"Buying the Dips"

Post by Taylor Larimore » Tue Feb 12, 2008 7:35 pm

Hi Timid Investor:

My question is: How many bogleheads consider "buying the dips" market timing?


The market goes up and down nearly all day long. What exactly does "buying the dips" mean?

How big a dip?
Does it mean keep buying if the market continues down?
Does it mean not buying if the market goes up?

Is "buying the dips" different for periodic contributions and lump-sum investing?

Do you have a link to any information about "buying the dips?"

It is hard to answer without understanding the question.

Thank you and best wishes.
Taylor

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Re: "Buying the Dips"

Post by timid investor » Tue Feb 12, 2008 7:57 pm

Taylor Larimore wrote:Hi Timid Investor:

My question is: How many bogleheads consider "buying the dips" market timing?


The market goes up and down nearly all day long. What exactly does "buying the dips" mean?

How big a dip?
Does it mean keep buying if the market continues down?
Does it mean not buying if the market goes up?

Is "buying the dips" different for periodic contributions and lump-sum investing?

Do you have a link to any information about "buying the dips?"

It is hard to answer without understanding the question.

Thank you and best wishes.
Taylor
I contend "buying the dips" is highly subjective and should remain that way.

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Re: "Buying the Dips"

Post by NoMoreInvestingExcitement » Tue Feb 12, 2008 8:18 pm

Taylor Larimore wrote:What exactly does "buying the dips" mean?
Hi Taylor:

I'm not going to attempt to speak for Timid Investor, and I don't know whether he/she will respond to your inquiry here or begin a new thread or none of the above.

But since I see that you are still eyeing this thread, I'll ask you a hypothetical question.

During January when the Wilshire 5000 was down about 15% or so, if a Diehard said to herself, "I'm going to scrounge around for some extra cash to invest (who knows: roll all those coins in the huge jar, use money previously earmarked for a "luxury" item that would be nice to have, but by definition isn't necessary, etc., anyhow money that was never meant to be invested in her portfolio), and if the overall US market is down tomorrow at least as far as it is today, I'm going to invest it in keeping with my overall AA."

According to your definition, which if you recall I've already admitted is concise and on point, market timing "is making portfolio changes based on market forecasts."

Assume tomorrow comes, the Wilshire 5000 drops even further, and she invests as she promised herself she would.

Two part question: A) Has she market timed under your definition? and B) If so, how big a "sin against the Diehard way of life" do you consider this to be?

To me, yes, she's market timed under your definition.

But as for "B" I don't think it qualifies as one of the Diehard "seven deadly sins" (I know there's no such thing ... maybe one of you Diehard Idols could write those up someday! :D ).

I respond to "B" this way b/c the money she used would not have been invested otherwise, she invested according to her AA and did not "speculate," and she didn't try to "time the bottom" - rather, she said to herself that stocks are, relatively speaking, on sale today and I'm going to buy more of what I normally buy.

OK. I know everyone's probably saying, "stick a fork in NoMoreInvestingExcitement ... he's done ... Taylor can take him off the grill now." Let me have it ... I really want to know.

Thanks as always,
NMIE
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Market timing hypothetical

Post by Taylor Larimore » Tue Feb 12, 2008 8:48 pm

Hi NMIE:
I'll ask you a hypothetical question.
Sorry, I'm not good with "hypothetical questions." Especially hard ones. :wink:

Best wishes.
Taylor

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Re: Market timing hypothetical

Post by NoMoreInvestingExcitement » Tue Feb 12, 2008 9:00 pm

Taylor Larimore wrote:Hi NMIE:
I'll ask you a hypothetical question.
Sorry, I'm not good with "hypothetical questions." Especially hard ones. :wink:

Best wishes.
Taylor
Hey, that's not fair :!:

You folks are supposed to have all the answers :!:

I spent all that time creating my post ... and that's the answer I get :!:

I'm calling the SEC ... no, they're overworked and wouldn't help even if they could ... how about the F ... the F ... there's gotta be a three letter acronym for an agency that'll make you answer! No, huh?

Yeah, thought so. :cry:

What if I told you that the facts behind the question are not hypothetical? I know, I know ... can't stay "too" anonymous on this Forum for long.

What say you now, Taylor?
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Re: Educating on Market Timing

Post by HerbertSitz » Wed Feb 13, 2008 3:44 am

leonard wrote:Seriously, if we had a discussion on the street with someone who claimed to be able to predict the future, most of us would file that under tarot cards, ouija boards, and crystal balls. We probably would not actually try to fashion rational arguments to convince someone they can't predict the future, as it likely wouldn't work. How do you convince someone they are wrong, if they can predict the future and you can't?
I agree market timing is bad and know well the futile feeling that can sometimes come from trying to convince someone it doesn't work.

But I would say that merely offering up the argument "You can't predict the future" is one of the worst moves you can make. Because you can predict the future.pretty damn well about a lot of things. Throughout my life I've been 100% successful in predicting that the sun will come up tomorrow morning. I'm pretty sure even the weatherman has been over 90% successful in predicting whether it's going to rain tomorrow or not. A lot of people have successfully predicted that index funds would outperform vast majority of actively managed funds when measured over periods of ten years or more.

So if you just say "You can't predict the future" you're saying something obviously false and people are right to disregard you. The problem is that you've got to explain why market-timing preditions in particular are unreliable and that's quite a bit harder. Especially when everyone is familar with examples from media or personal friends where market timing predictions have worked. You need to get them to consider and interpret hard data, educate them on behavioral finance, etc. It's not easy to convince someone if they're not open to it. They'll have to find their way there by themselves, you can give them a little perspective that hopefully they'll reconsider down the line if they persist in their market-timing ways.

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Post by leonard » Wed Feb 13, 2008 5:19 pm

So if you just say "You can't predict the future" you're saying something obviously false and people are right to disregard you.
I didn't think I specifically needed to call out the difference between predictions based on science/natural law versus predictions of events that are not - those that are random. Obviously, short term moves in stock prices are random, thus market timing falls in to the second class of predictions. Again, I would be concerned with the ability of the market timer to comprehend the difference in those 2 types of "predictions", if I actually needed to explain the difference.

Why? Because it is clear that most market timers are not applying a scientific "rule" to do their market timing. They are making vague guesses based on market predictions and the like. Again. clearly such predictions are predictin essentially random events.

So, I am not sure that making this distinction would really help convince a market timer.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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Post by FinanceGeek » Wed Feb 13, 2008 5:51 pm

Dang, I saw the title of this post and had hoped you were going to educate me on how to do technical analysis :P

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