A Foolproof Plan For True Market Timers

Posted on August 2, 2013 at 12:09 PM PST by

Quick question for market timers: Can you tell the difference between “imminent” and “imaginary” trends in the markets?

It’s an important consideration, if you are a market timer at heart. For instance, a lot of folks bought gold in the last few years on the presumption that its ultimate triumph over all other asset classes was imminent.

market timers

That one turned out to be imaginary, at least for now. Something similar happened to Apple stock investors. Once it broke that $1 trillion market cap, boy, the sky was the limit! Also, sadly for some, an imaginary outcome.

If you’re going to be a market timer, you have have to be able to forecast the future. It’s a feat many people attempt every single day on financial cable TV.

They rarely get checked on those market direction calls, of course. But you know the language they use:

  • “This stock is about to zoom higher.”
  • “Nobody loves this asset class, so I’m a buyer.”
  • “The Fed can’t keep this up. I’m going short”
  • “The Fed can keep this up. Short at your own risk!”

And so on and so forth, filling up the airwaves with tons of blather quickly forgotten. Mostly, market timers are money managers and, on occasion, business world celebrities and other well-known faces.


Some of these folks are serious about managing money. Many are not. Everything they discuss is, by definition, imminent. In practice, it’s often also imaginary. As it turns out, these are not mutually exclusive categories.

So can anyone be a market timer? Sure, by trading trends in reverse. Rather than attempting to predict what will happen next, you own the market — using a variety of investments and asset classes via index funds — and just wait.

Eventually, the big wheels of the money world will turn, moving capital from one part of the market to another. Hedge funds do their thing. Big institutional investors get pushed around by changes in their models. People retire and cash out. Others come in to buy.

A smart investor waits for opportunities to appear, and those opportunities are far more obvious in the rear-view mirror. As your initial portfolio gets distorted by events, you will be handed chance after chance to sell gainers and buy other, “unloved” assets on the cheap.

A simple approach

You don’t have to go all in to make it work. Just shave off the upside and buy things on the downside as you go using a simple rebalancing approach. Keep costs low and be patient. In time, your chance to make the trades that matter will appear.

There’s little glory in incremental moves, I know. But a low-cost, low-stress trading portfolio using inexpensive ETFs can get you the compounding return performance you need to retire on time, no TV watching required.