Lessons From Stock Market History Pt.4: stock market timing (video)

– Posted in: Investing In Stocks

This 8-part series is about investing in stocks. The next lesson is to forget about stock market timing. This outstanding video series was produced by SensibleInvesting.tv. I have created a summary and transcript to help you find spots that interest you and make the best use of your time.

Summary of video: Lessons From Stock Market History Pt.4: stock market timing


SensibleInvesting.tv is an independent voice that makes important educational videos about passive investing—the best I’ve seen. This series features some of the biggest names and brightest minds in the investment world. It is presented and produced by Robin Powell and his team at SensibleInvesting.tv, and published on YouTube. It is a great honor to include it in our collection of video tutorials about “Investing in Stocks”.
Key points about investing in stocks from this video:

  • The next lesson is: don’t try to time the market. Stock market timing is impossible.
  • The mantra that wise investors share is the importance of time in the market rather than timing the market.
  • Studies show that stock market timing strategies fare worse than simply buying and holding.
  • For stock market timing to work it’s not enough to spot when prices are about to fall. You need to identify when they’re ready to rise again.
  • Buy and hold really is the best strategy because there is no way of predicting short-term ups and downs.

Transcript of: Lessons From Stock Market History Pt.4: stock market timing


(At 0:07 start Robin Powell, reporter)

We’ve explained why market history shows we need to be realistic as investors and also to keep calm when others are letting their emotions get the better of them. Now, for a lesson that very few people, least of all the so-called experts, have managed to learn, and it’s this, don’t try to time the market. The money pages in the business channels are always telling us now is the time to buy, sell, or hold, but although it sounds a very seductive proposition, all the evidence is that market timing is a pointless and often costly exercise.

(0:43 Richard Wood)

The fund manager or a stockbroker will try to deluge you into believing that they can tell you the cycle of a stock market. They’ll tell you that they’ve got certain software programs that will tell you when the market is at the peak or when it’s in a trough. What they say is that they’ll sell high and buy low. My opinion is it can’t be done.

(1:05 Prof Dimson)

Stock market timing: the time in the market is what is important, not timing the market (predicting).

Stock market timing: the time in the market is what is important, not timing the market (predicting).

When we look back in time, we could always say when shares looked expensive and we should’ve got out or when shares looked cheap and we should’ve got in, but at any particular point in the past, we only have data which is available at that time, and that makes it much more difficult to determine when’s a good time to invest or when is a bad time to invest. The mantra that people share is the importance of time in the market rather than timing the market.

(1:36 Robin)

Prof. Dimson is co-author of the world’s most detailed ongoing study of global investment returns. He and his colleagues looked at markets in 20 countries from 1900 to the present day and tested a strategy that sold equities and moved into cash every time throughout that period when price-to-dividend multiples went significantly above their historic average, in other words, whenever shares appeared overpriced, but in all 20 countries, the strategy fared worse than simply buying and holding. In some cases, it inflicted outright losses.

Now, someone you’d think could spot a market bubble a mile off was the brilliant economist, John Maynard Keynes. In the 1920s, Keynes was a fellow here at King’s College Cambridge. He was also the college bursar, responsible among other things, for investing the college’s wealth. When the mother of all market crashes occurred in the autumn of 1929, Keynes was about ill-prepared for it as anyone else.

(2:46 Dr. Chambers)

Keynes started off believing that it was possibly for him to time when to put money into stocks, take it out of cash or take it out of bonds, put it into stocks, and then take it out to again when he thought the market had reached a peak. Despite being one would think well-positioned to execute a strategy like that, he was unable to fall the fall in the market in London that came in the autumn of 1929. He had committed his portfolio in quite a significant way to investing in stocks, so that was a very painful experience for him, and I think illustrates for ordinary mere mortal investors that market timing does remain an extremely difficult thing to do.

(3:35 Robin)

Of course, for market timing to work it’s not enough to spot when prices are about to fall. You also need to identify when they’re ready to rise again, and that is every bit as difficult to do.

(3:47 Weston Wellington)

The evidence is that most of the people who told us that we were going to have a crash in 2007 or 2008, they weren’t telling us to buy stocks in early 2009 to benefit from it. They were still telling us it was time to run for the hills and many of them still haven’t changed their tune. Now, there maybe people in the 2008, 2009 downturn who told us to get out and then told us to get back in at roughly the appropriate time, but I’m still looking for that individual.

(4:17 Robin)

Buy and hold really is the best strategy, and because there’s no way of predicting short-term ups and downs, you might want to consider drip feeding money into the markets instead of investing it all at the same time. This approach sometimes known as pound or dollar cost averaging particularly suits the more risk averse.

(4:38 Prof Rutterford)

That’s what’s positive momentum, so people start buying shares that are going up, and when they go down, people start selling shares that are going down, so prices are going to move in a way that doesn’t reflect the value. The way to get around that is to make sure that if you have a lump sum to invest, for example, you don’t invest it all at once, that you spread it over several months, for example, to try iron out any of these major bubbles.

(5:06 Robin)

We’re now halfway through our 8-part series on the key lessons to learn from market history. Join us again for the next lesson in part 5.

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Footnotes and Credits: Lessons From Stock Market History Pt.4: stock market timing

This video was produced by SensibleInvesting.tv and published on YouTube Aug 27, 2013 on their YouTube channel SensibleInvesting. Their videos are the best I’ve seen on this topic. They produce them and own the copyright. They have given me permission to embed this via YouTube license onto this educational website.

Sensibleinvesting.tv provides information and opinion on low-cost, evidence-based (passive) investing. They are based in the United Kingdom, but their lessons are universal.

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