In that sense, market timing is extremely difficult even for professionals. We do have data on market-timing newsletters and the picture ain’t pretty. Mark Hulbert, who tracks these things, says 80% under perform the benchmark index.

Also, indexing is hardly as popular as you think. The popularity of ETFs is mostly with traders, not traditional indexers (BNN even has an ETF Update segment. The other day they recommended the Russia Fund. That’s hardly indexing in my book). Nortel refugees are now busy chasing resources and emerging markets.

I’ll readily accept that value investing and dividend-growth investing are great strategies. However, indexing is the easiest to get right and will work for everyone.

Tom Bradley from SteadyHand reinforces the reasons why most investors fail initially at value investing, and how devoted ones can prevail by embracing a few basic principles.

http://blog.steadyhand.com/default.asp?item=646785

I do not know if Juggling Dynamite engages in value investing. I apologize if I’m going off on a tangent.

Unfortunately, marketing timing is the hardest part for avg joe investor.

The reason why the average investors consistently under-perform the market is well understood. As CC alluded to, investors shoot themselves in the foot by chasing overvalued stocks. Although the lingering behaviour is not easily correctable, this under-performance is not accidental.

Here’s my question. If you have the ability to rewire your brain to think independently from the rest, can you improve your odds of beating the market? Although the “average” investors can’t or aren’t willing to diverge from the herds, should the rest should simply toss their hands up? After all, many index investors only sought refuge after chasing Nortel, which hardly qualifies as an admirable attempt to learn the proper market-timing techniques.

I don’t have an opinion on Danielle’s book since I haven’t read it. In general, I think we shouldn’t judge any market-timing book on the merit that the techniques are too daunting for the average investors. Often the average investors aren’t the intended audience.

Phil: Good point about market strategies. It is a bit like religion. You can pointlessly argue which one is better but like you say, you should simply settle on something that works for you. My investing style is a bit like yours. If I feel like a stock / asset class is overvalued, I simply keep that portion in cash. For instance, I have no exposure to REITs and emerging markets. However, once I am invested I don’t sell and go to cash.

Having said that I measure every strategy against a passive, indexed and diversified portfolio because it is very simple to implement for the average investor, who has a history of poor returns and has a tendency to chase yesterday’s winners consistently. Many strategies that work for some investors fail this test.

Mike

So, just pick a philosphy that works for you and go with it.

My own personal philosophy includes market timing. Don’t buy when the P/E ratios are sky high (in my opinion, sky high is anything above whatever the Big 5 banks are trading for – they are my benchmark). I only sell under two circumstances: 1. the fundamentals behind the investment has changed. 2. when I need the cash for something else.

Which brings me to a question concerning fees…

Someday well into the future when I’m retired… Can I move stocks out of my RRSP in kind, or is it mandatory for me to sell the stock, take the cash out of my RRSP, incur the taxes, put the money into my taxable brokerage account, then buy the same stock back afterwards, incurring the brokerage fees in both directions? That would work out well for my broker, but not so good for me… =0(

I agree that market timing is a very daunting task for most people to implement for themselves, beacuse they tend to do it emotionally and exactly backwards, ie., confidence at the top and panic at the bottom. In fariness my book says it is very hard for someone to do this for themselves. It is not easy for even us seasoned professionals to move against the pack at the peak and bottom of market cycles. But like many things that are difficult to do with constant discipline, the effort is key to lasting rewards over time.

It is true that I do not go in to the specifics of how we execute timing at our firm because I did not write the book as a do-it-yourself guide for people to follow our approach. It would be not in the best interests of our clients, for me to explain exactly which metrics we use. I do point out that one can use fundamental and technical filters to monitor price risk and compile their own objective timing rules. And I point out that the rules must be presrcibed in advance and stuck to over time. This is what all the great money managers do. That is why they will tell you that you need to develop a discipline and stick with it religiously.

Yes it is true that we cannot predict the future, but if we are paying careful attention, we can know when markets are significantly overvalued by our selected metrics. And when they are, investors had better have someone looking out for the protection of their hard-saved capital. To do otherwise is to either be ignorant of the nature of the beast or wilfully blind to price risk.

So much energy and focus is on the minutae of what markets do each day and week. And yet, its not about how markets perform, its about what an investor keeps that matters most in real life.

We must wear as much protective armour as possible when we are juggling dynamite. Markets are a risky place to blindly park one’s savings.

Best wishes to you all. D