Claim 13 of 22
Market timing: time the market and cut losses early
Can anyone choose the right moment to buy and sell?
Verdict
Not established
The Schwab arithmetic shows that perfect timing finished $15,522 ahead of investing immediately (9.1 per cent more) and that bad timing still beat cash, but the study assumes foresight. The sources read cover index futures (Kaminski and Lo) and one paper-traded CAN SLIM portfolio (Lutey and Rayome) in which the selling rule was applied with a couple of misses and never measured on its own, and the 18-year cycle on which Patel's book bases its guide to "what to do at each stage" remains untested in them.
The cost, from the book's own figures. Taking the claim as stated, the most that perfect foresight added over 20 years was $15,522 on $40,000 invested, while staying in cash and never buying shares ended at $47,357 against $170,555 for investing on the first trading day.
Made by: O'Neil, Patel. Argued against by: Housel, Bogle, Malkiel, Graham, Booth.
Test it on your own numbers
- United States: Investor.gov, Beginners' guide to asset allocation, diversification and rebalancing (investor.gov/additional-resources/general-resources/publications-research/info-sheets/beginners-guide-asset), to set a time horizon and a rebalancing schedule.
- United Kingdom: MoneyHelper, Thinking about investing? Make sure you understand the risks (moneyhelper.org.uk/en/savings/investing/thinking-about-investing-make-sure-you-understand-the-risks), to check whether money can stay invested for five years or more.
- Australia: Moneysmart, Develop an investing plan (moneysmart.gov.au/how-to-invest/develop-an-investing-plan), to write down a time horizon and a risk tolerance.
The full test, with every figure dated and sourced, is in chapter 13 of the book.