With the Dow Jones Industrial Average and the S&P 500 both recently passing their all-time highs, investors and market experts are asking one question: Is market timing dead?
This was the subject of a recent MarketWatch column written by Mark Hulbert, the creator of an indicator to gauge the popularity of market timing two decades ago, and who says he believes that with more investors asking this question, the market top is near. This metric aimed to assess where financial adviser sentiment fell on a scale between the two extreme investment strategies – market timing, common when markets are at or near the bottom, and buy-and-hold, favored when markets are hovering in proximity to their peak.
According to Hulbert, market timing goes in and out of popularity with a predictable regularity. As such, he detailed two examples of how his philosophy is successful, one in which he anticipated the final low for the market during the most recent recession, and the other where he foresaw the bottom of an economic slump from 2003.
"In the initial phases of the typical bear market, the recent convert to buying and holding will keep repeating that the best long-term strategy is to shun market timing," Hulbert wrote in the article. "But as the bear market's losses continue to mount, more and more of those latter-day converts find themselves unable to tolerate the pain, and decide that they really believe in market timing after all."
Still, while the market is near it's peak, investors may want to reconsider eschewing market timing. Viewed by many experts as a superior exit strategy to buy and hold, market timing remains an aggressive approach that can be useful for investors who can take on the risk to guard against short-term setbacks.
If you're thinking of adopting a market timing strategy, risk management should be a key catalyst. At SmartStops, we offer a revolutionary, unbiased resource that makes it easy for you to know when your equities are experiencing a period of elevated risk and need attention. To find out how we can help you adjust for market conditions, click here.
Categories: Financial Advisors