A Doctor-Financial Advisor Makes the Case for Stock-Market Timing

Do a Growing Number of Stock-Market Timers Outperform?

By Dr. David Edward Marcinko MBA CMP™



Money management styles tend to fall in and out of favor in cycles. When the market goes through a sustained bull market, buy-and-hold becomes the proclaimed path to investing success as I have opined previously. But, when the market enters a bear phase, like the flash crash of 2008-09, there is renewed belief in market timing as I now try to explain.

The Studies

And yet, studies of actual results of professional money managers using market-timing techniques reveal that the average timer’s results, like the average mutual fund, slightly lag behind the market indexes. But a growing number of timers consistently outperform the market over a full market cycle. When risk-adjusted return is used as the standard to measure performance, even the average market timer outperforms the market by a notable margin. A study of 25 market timers by Wagner, Shellans, and Paul (1992) during the period 1985–1990 (both bull and bear) shows that the level of risk assumed by the average timer was 40–60% below the S&P 500, even after subtracting fees, and the returns were comparable to the S&P 500.

Marketplace Phases

History has shown that starting from the market’s last high water mark, the market typically goes through three phases: (1) a correction, (2) a recovery to breakeven, and (3) a move to new highs. A study of the 108-year period from 1885 to 1993 reveals that the average correction phase consumed 32% of the time period and the return to breakeven exhausted an additional 44%. The market spent only 24% of the time moving to new highs. This is the only time that typical buy-and-hold investors saw their investments appreciate. This makes the stock market an extremely inefficient money-making vehicle.

Since the market timer who sold at the top will have more money at the bear market bottom than the buy-and-hold investor, the study indicates that the timer may have between 26% and 54% more to invest on the upswing. The study also shows that a timer does not have to be perfect in discerning entry and exit points. In fact, he or she can miss 20% of the advance, participate in 20% of the decline, and lose money as much as 47% of the time and still have an average gain equal to the net average gain for the buy-and-hold investor.


Of course, it is quite a feat to obtain all the returns attributable from the buy-and-hold strategy while being in the market about half the time. 

Note: “Why Market Timing Works,” Jerry C. Wagner; The Journal of Investing; Summer of 1997, pp. 78–81, Institutional Investor, Inc.


And so, your thoughts and comments on this ME-P are appreciated. Did I make my case? Are you a market timer or buy-hold strategist; and why? Did this strategy work until the market meltdown of 2008-09; how about since then? Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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2 Responses

  1. Health Care Stock Checkup

    This was a very intriguing post, Dr. Marcinko.

    As you know, health care costs are expected to remain a source of headaches, anxiety and indigestion for Americans for the foreseeable future, but a number of health-related companies might make some investors feel a little better.

    So. check them out:




  2. Close to One Year Follow-up

    Don’t buy the old market story of ‘buy and hold,’ which has become ‘hold and pray’.

    Physicians, and all investors, must have an understanding of what it means to lose money regardless of age. Unfortunateloy, we have been told that when we are younger we should be more aggressive – and as we age we should become more conservative.

    IOW: Age has been sold as the primary driver of how much risk we should take. This is wrong! Know the return you truly need by having a financial plan, and build a portfolio based on your own situation.

    But, if you need more than a 4% to 8% long-term return to reach your goals, wake up. The ride will be bumpier than you can stand. Or, you should re-adjust your goals and expectations, accordingly.

    Dr. David Edward Marcinko MBA CMP™


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