Market timers are fooling themselves

Posted by TEBI on July 29, 2020

Market timers are fooling themselves


Robin writes:

If global stock markets have taught us anything this year, surely it’s that successfully timing the market is impossible. And I don’t use that word lightly.

Of course, there will always be people who get it right once. But consistently making the right calls over the long term can’t be done. There’s not a single person or trading system in the world that can do that.

Of course, there are many, many people out there who claim to be able to do it — not least active fund managers. But, as Professor David Blake from City University in London reminded us again today, the overwhelming weight of academic evidence shows that active managers are “very poor at market timing” — and cites their dismal performance during the Covid-19 pandemic as yet another example of it,

“Most outperformance is due to luck, not skill,” Blake told Financial News. “It takes a very long period of performance data to distinguish skilled managers from lucky ones.”

Many financial advisers are also market timers. Some of them urged their clients to sell their stocks when markets fell in March. Did they get those clients back into the market in time for the start of the rebound? I very much doubt any of them did.

Another highly regarded academic who has consistently warned against market timing is Ken French, the Roth Family Distinguished Professor of Finance at the Tuck School of Business at Dartmouth College in New Hampshire.

In a new video for Dimensional Fund Advisors, Professor French warns that “most people who try to time the market are just fooling themselves”.

Still not convinced? Please watch it:





Here are some other articles on market timing which you may find helpful:

Elroy Dimson on the problem with market timing

Five better strategies than timing the market

Market timing habits die hard


Interested in more insights from Dimensional? Here are some other posts in this series:

Should a top-heavy stock market worry us?

Why the disconnect between the economy and markets?

The widening valuation spread between growth and value

What will the recession mean for small-cap stocks?

How worried should investors be about the recession?

Remember, you’ve trained for this



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