MARKET TIMING – What is it? And should investors be doing it?

The Definition: Market timing involves any change made to the mix of the assets in a portfolio based on any kind of prediction about the future.

And NO, you shouldn’t be doing it. Market timing with investments is always a bad idea. No one can predict the future. Anyone who appears to have done this in the past may have indeed gotten one right, they may have even done that in a very complex and educated way, but still, they simply got one right. They may even get a few right, but the likelihood of an advisor, or a fund manager getting it right for a period of time long enough to actually benefit an investor is impossible.

The mutual fund manager who beat the market the longest was Peter Lynch. He managed a Fidelity fund called Magellan. From 1979 through 1992, Lync’s complex market-timing strategy worked to best the market 11 out of those 13 years! Amazing. No one had ever done that before. And no one’s done it since. This was a verifiable five-star performance that beat all competitors. Today, 22 years later, Peter Lynch is still a household name as a result.

But who benefited? When did all that money come in?

Few had even heard of Peter Lynch until the mid 80s. So, the lion’s share of the money entered the fund well after the best years were behind him. Those who got in late were all hopped up on the “unspoken promise” of winning results. When those results began to fade a few years later, many got out. Those who held on through the 90s underperformed the market index on average for that entire decade and until now.

So no, I don’t believe it’s a good idea for investors to utilize this strategy in their portfolios. Investors should avoid any kind of advisor or product that makes any kind of market-timing, prediction-based decisions. Simple, right?

Simple maybe, but not easy. Tune in on Friday for the layered reasons why.




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