So what exactly is Market Timing? Well, before we get into that let’s first take a look at what Market Timing isn’t, or rather things that have nothing to do with it. Here are three:
You’ve surely heard of “Buy in May and go away,” right? How about “You must always remember to short in September” or “Bonds are real keen when the grass is green?”
Well if those last two are not too familiar, it’s because I just made them up (hopefully you figured that out). In fact, with some expressions nobody really knows how they came about or if they even apply anymore. So who the heck goes away in May anyway these days? And the last time I went somewhere, I had something with me called a cell phone that kept me completely connected to the market at all times (I’ve really got to stop doing that).
It’s no surprise that even mindless ideas can become hugely popular as a result of catchy names and phrases. So if you want your Market Timing system to stick give it a catchy name. Here’s some more:
“Buy in October, unless the market rolls over,” in which case “you’ll surely be ballin’ when the leaves are fallin,’ ” or…
“The Fed is today, but it should be okay.”(One of my favorites)
Okay, you get the point.
Remember the face on Mars? FYI not really a face. Then there’s Jesus Toast and the Grill Cheese Virgin Mary (which actually sold for $28k on eBay and is now proudly displayed on the wall of a casino somewhere… how fitting). I know these stories may seem silly, but this kind of stuff is happening everywhere and if you think you’re above it, think again.
Which leads me to this, which will probably get me in trouble with the technical analysis crowd (including my former self), but here goes… Humans (which includes traders) see meaningful patterns in what is otherwise random meaningless data. We’re always trying to make sense of things. It’s something that has been hard wired into our perception way longer than the creation of stock charts. Yes I used them too, religiously. I drew so many shapes and trend lines that my charts started to look like abstract art.
Don’t see what other traders see? Stare at the charts long enough and you will.
3. Prince… uh, I mean Price
Actually, maybe I did mean Prince. After all he did say we were “Oops out of time” in “1999,” accurately predicting the burst of the Dot-Com bubble. Just a lucky call or a masterful predictor of price behavior? His guess was just as good as yours or mine.
So how come hardly anyone saw it coming? Well for starters, prices are misleading. I used to think the S&P was high at 1400. Turned out it was a buy and now near 2000 it’s déjà vu all over again (Yes I also bought $AAPL close to 700 when the crowd was convinced it was “Goin’ to 1000”).
It’s even more confusing when we have a little dip and all the doomsayers step in, scaring everyone away from what in hindsight was a golden opportunity. But sometimes the dip doesn’t happen and after waiting what seems like an eternity we all jump in until… well you know how it goes. As the guy who bought the Nasdaq at 5132.52 knows, it’s lonely at the top.