Timing The Stock Market

As I’ve articulated before, I’m not a big fan of timing the stock market, and everything I’ve read about the efficient market hypothesis (that stocks are rationally priced at all times based on the sum of everyone’s understanding of the market) makes sense.

That being said, there also seems to be a great case against selling when markets fall, or buying when markets are very bullish (going up fast). Following the market sentiment apparently can erode the gains many investors could have made. The average investor supposedly made around 6% annually in the market during the 90’s, when the market as a whole was gaining 16% annually. The explanation for this was that most investors were following the “hot money” and buying things AFTER they’d increased in value.  Read More…


  1. Anyone remember the internet bubble in the late 90s early 2000-2001. Most of these late investors lost it all.

    I interned in Silicon Valley at the time and it was like a ghost town after the crash.

  2. Until the end of time people will always follow “hot money” because it is easy and on the surface seems like the sure thing.

  3. Yes the same thing happened with crude oil and the high price of gasoline during the 2008 u.s. election period. The candidates were all braging about giving a gax tax cut because of soaring prices. Most investors kept buying crude oil sending the prices higher and higher. Strangely enough every time crude oil traded up higher the price of gas went up too. Never did understand that.

  4. Recall about 3-5 years back the hot thing were buying emerging market stocks and funds. Anything East Asian or South American was a must have and returns about 40% were not uncommon.

    As is pointed out the people that jumped in to join in the fun were doing so at pretty much the apex of the market and only momentum left was a down one.

  5. Timing the stock market is tough. I should know i’ve tried doing it so often. Sometimes i’ve come out ahead and others not so much. On average i think i’ve broken even.

  6. Sheep always move in packs

  7. I am a big techical analysis guy and so watching for trends is my thing. Often times i find most people skip this approach and just do what their friends are doing. Bad idea. Unless you look into the specifics you can lose big every time.

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