Attempting to Time the Stock Market?

Posted on March 29, 2014 by Dr. David Edward Marcinko MBA

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A Fruitful or Futile Endeavor?

[By Dr. David Edward Marcinko MBA CMP™

BC Dr. MarcinkoSome medical professionals, or their financial advisors, believe they are “smarter than the market” and can time when to jump in and buy stocks or sell everything and go to cash.

A Tale of Two Physician Investors

Wouldn’t it be nice to have the clairvoyance to be out of stocks on the market’s worst days and in on the best days? Consider these two doctors.

The Good Stats

Using the S&P 500 Index, our agile imaginary MD investor managed to steer clear of the worst 12.42% annualized return (including reinvestment of dividends and capital gains) during a recent 20+ years time frame, sufficient to compound a $10,000 investment into $107,100.

The Bad Stats

But, what about another unfortunate DO investor that had the wonderful mistiming to be out of the market on the best day of each year. This ill-fated investor’s portfolio returned only 4.31% annualized from Jan. 1992-March 2012, increasing the $10,000 portfolio value to just $23,500 during the 20 years.

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Assessment

The design of timing markets may sound easy, but for most all investors it is a losing strategy: http://www.CertifiedMedicalPlanner.org

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Conclusion

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3 Responses

  1. Dr. Kirkly, on March 29, 2014 at 1:36 PM said:

    How Market Timing Affects Your Portfolio

    See how the sequence of returns affects portfolios differently by comparing three types of clients.

    http://www.financial-planning.com/fp_issues/2014_4/sequence-of-returns-impact-on-investing-portfolio-2688670-1.html?utm_campaign=weekend-mar%2029%202014&utm_medium=email&utm_source=newsletter

    Dr. Kirkly

    Like

  2. Ben, on March 30, 2014 at 2:21 PM said:

    Market Timing

    A fool’s errand. Buy the market, invest and relax.

    Ben

    Like

  3. Lou, on April 2, 2014 at 1:40 PM said:

    Timing ….

    Indeed, stocks no longer are cheap. The S&P 500 now trades at about 16.5 times its earnings over the past 12 months and about 15.4 times expected earnings over the next 12 months. That compares with a 10-year average price/earnings ratio of 14.7 based on the past 12 months’ earnings, and 13.9 based on expected earnings over the next 12 months. A year ago, the figures were 14.3 and 13.5, respectively.

    In other words, stocks have entered expensive territory. The market’s P/E ratio is about the same as when stocks peaked in October 2007.

    Lou

    Like

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