Time pickers mistakenly believe they can predict the direction
of the market. They attempt to be invested in stocks when
the market is going up, and shelter investments in cash,
treasury bills or bonds when the market is going down. While
market timing sounds like a good idea, important peer-reviewed
studies and research reveal that market timing is not only
very costly, but fruitless.
The definitive study of time pickers was conducted by John
Graham at the University of Utah and Campbell Harvey at Duke
University who together painstakingly analyzed over 15,000
predictions by 237 market-timing investment newsletters from
June, 1980 through December, 1992. By the end of the 12-year
period, 94.5% of the newsletters had gone out of business,
with an average length of operations of about four years!
The conclusion of their 51-page study concluded, “There is
no evidence that newsletters can time the market. Consistent
with mutual fund studies, ‘winners’ rarely win again and
‘losers’ often lose again.”
Jeffrey Lauderman wrote
a BusinessWeek article dispelling the myth of market timing,
which he called a “perilous ploy and a guessing game.” His
1998 analysis included an interview with Mark Hulbert, who
monitors the time pickers’ recommendations. Hulbert’s conclusion
provided a knockout blow to all 32 newsletters he tracked.
Not one of the timing newsletters beat the market. For the
10-year period from 1988 to 1997, the time pickers’ average
annual return was 11.06%, while the S&P 500 stock index earned
18.06% annually and the Wilshire 5000 earned 17.57% annually.
The figure below tells the story.