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A Worn Out Cliché

Mar 17, 2016 | Dr C K Narayan | Interesting Read | 6 Comments

A Worn Out Cliché

One of the most heard lines in the market is that you cannot time it. This is the dividing line between those who practice technical analysis and those who don’t. Those who don’t use technical analysis argue that the danger of timing is that you may be out too early or not be present when the stock makes the best move. But it is a bland statement which has little basis. There is no record of someone missing a big move because he was trying to time it. When argued thus, they turn around and say OK show me a rich market timer. The answer to that one is: if you don’t know a rich market timer that doesn’t mean they are not there. After all, rich non-TA practicing people aren’t exactly falling off the trees or sprouting like seeds. So that argument is also pretty specious.

Then the next point made in favor of not timing is to reel out statistics. But then this can (and is) countered by other statistics from those that do practice market timing. So who is right? No one can really decide. Then the gambit is to go towards records and academics. Value, growth investing and long term play in general has many academic papers. Where, ask the non-timers, is academic evidence that timing works? Now, it is a fact that there aren’t as many papers for market timing as there are for long pull investing. But does that really prove anything? It just means that there are more academicians looking at the long term than market timing! Just because one can string together data in a form that makes it explicable does not become an argument for something or against something! With today’s computing power anyone can set up any kind of statistics to prove anything! Does that make it right? Will it make it work? I doubt that.

Finally, when all other arguments fail, there are always the icons. Look at Warren Buffet, say the non-timers. He is the answer to your argument. Well, no one disputes Buffets achievements. But if facts are to be believed, 90% of his wealth was created well after his 60th birthday!! And he started in this game in his teens! Now, think about this. Who has the patience of Buffet? If you do, then never bother about timing the market. But I would wager a large sum of money that 99.5% of the people involved in investing and trading wont have anything like Buffet’s patience. 60th birthday? Hell, I don’t want to wait even 60 days!! That’s what most people would be thinking. Give me my return Now! Since almost everyone falls into the category of ‘returns-now’ group, it would be impossible to achieve that without timing!

So, it is not a question of whether or not one should time the market. It is, instead, a question of whether you can do without timing or not. If you are just paying lip service to the long term (as I find most people to do, including those that manage large sums of money) then you are just fooling yourself. Also, realize that when you have to time the market, you also have to work to acquire those skills. And implement them. That is a can of worms that most people don’t really want to get into! So it is easier to damn the process than to admit that you cannot do it!

Success at investing and trading requires you to be honest with yourself. Look at your qualities. Are you cut out to be a long term investor? Or are you just a trader in disguise? Maybe you are a lazy person who just wants the gains but not the effort? Timing is just one of the things that you do in the market. In this context something that Buffet has said is applicable. He said, in a rather circuitous way, “I am a good investor because I am a business man. And I am a good businessman because I am an investor” What does this really mean? A good businessman is one who does what is needed for his business to survive and to thrive without becoming emotional about it. When something needs to be done he does it. Doesn’t that also apply to moving out when there is a need to move out of the stock? Hanging on stoically may be great if you have endless patience and abundant money and no pressure to create returns on a regular basis. But is that true for most people? Peter Lynch’s fund made most money for investors who were there the longest. But are investors really looking to be there for the “longest”? A few are, no doubt. They are the ones who can speak about hanging on and benefits of long term. But for most others? It is just academic.

All these points get lost in the bland statement that “it is not timing the market but the time in the market”. This is a nice sounding cliché. But like most clichés, very few practice it. The next time you hear it or quote it, see whether it applies to you. If it doesn’t, at least don’t repeat it like a robot. Or say it like it is some kind of truth. It is not. It is just applicable to a few. For the rest of us, life is different. And we have to find our own way through this mess. And quoting clichés is not going to do it. Worse, you will lose out if you actually start believing it. Find out who you really are. If you are not the Buffet type, then it would be better to arm yourself with some skills at market timing!

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  1. GANESH SUBRAMANIAM

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