by Rob Bennett
There’s a fellow named Larry who visited my blog one day. He is a very nice guy and a very smart guy. He found my advocacy of long-term market timing more than a little off-putting.
Larry politely pointed out to me that there is a wealth of academic studies showing that market timing doesn’t work. I responded by telling him that in nine years of effort I have never been able to find such a study.
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I’ve found many studies that show that short-term timing (changing your stock allocation with the expectation of seeing a benefit for doing so within a year or so) doesn’t work. I have never found a single one showing that long-term market timing (changing your stock allocation in response to big shifts in valuations with an understanding that you may not see a payoff for doing so for as long as 10 years) doesn’t work.
Larry was at first unsure how to respond to this. My sense was that he was personally convinced that I was off my rocker. But he is too polite a person to say so. So Larry offered me a deal: If he were to spend the next three weeks reading every article at my site and checking on the accuracy of the claims made, would I be willing to post an article which he would report on his findings? “Sounds good,” I said. So Larry got to work.
A few weeks later, I got a call from Larry. We ended up speaking for several hours.
He said that every claim he was able to check out passed all his tests. It’s all true! There is zero evidence that long-term timing does not work. There is a mountain of evidence that it does. The statement “timing doesn’t work” is false. A more accurate statement is “timing always works.” (Of course, the most accurate statement is the one that distinguishes between short-term timing and long-term timing, pointing out that short-term timing never works and that long-term timing always works.)
Larry has worked with actuaries concerned about the state pension crisis. He once worked for a Presidential candidate. He knows venture capitalists.
The next day he told me that he had become so excited as a result of our talk that he was not able to sleep because his mind was racing with thoughts of the possibilities for how we could change the world in a positive way by getting the word out about how stock investing really works.
Our findings would help with the state pension funding crisis. The politician might be able to get policymakers involved. Venture capitalists would be lined up to finance projects helping people to learn the realities of stock investing if they learned about the work we have done in the Retire Early and Indexing communities and checked it out as carefully as Larry did.
I’ll share with you a few statements that Larry made to me in e-mails that indicate how strongly he came to feel about Valuation-Informed Indexing over the next few weeks.
Larry said: “What you have done is beyond awesome.” He said: “The P/E10 tool could drastically change how the entire investing industry operates and measures risks.” He said: “I believe this tool, combined with quality macro-economic analysis, will change the history of investing in this country.”
So Larry and I are partners. We are working together to spread the word.
No. That last part isn’t true.
Larry got cold feet. As excited as he was about the positive changes that promotion of Valuation-Informed Indexing could bring to our world, there is one element of this strategy that he just couldn’t accept: It involves a form of market timing.
Larry said: “The key is explaining that Valuation-Informed Indexing is a tool of asset allocation, not market timing.” He said: “Timing is cast in such a negative light by the press and this is reinforced by most planners.” He said: “I can’t visualize large institutional investors telling their clients that they are engaged in market timing.”
Larry is not the only one who feels this way. Over the course of the past nine years, I’ve run into hundreds of people who are generally supporters of the Valuation-Informed Indexing concept but who have been quiet in their support of it because of fears that it violates a Social Taboo to speak out in favor of market timing.
Market timing is dirty. Market timing is stupid. Market timing is evil. That’s the widespread perception.
There is not an iota of merit to such claims. The reality is precisely the opposite: Long-term market timing is the key to long-term investing success. But when an idea becomes as widely accepted as the idea that there is something bad about market timing has become, it comes to feel weird and strange and wrong to go against it. No matter how much good we believe market timing could bring to the world, we don’t feel right promoting it,. It’s not done. To promote market timing, even the long-term variety, makes you a social outcast.
We’re going to have to get over this.
The finding that short-term timing never works is the second most important discovery ever made in the history of investing. The finding that long-term timing always works ranks higher. This finding is the most important investing discovery of all.
We need to get the word out.
Rob Bennett admires John Bogle but believes he made a big mistake with his endorsement of Buy-and-Hold. His bio is here.