Why don’t I try to time the market? Because the experts can’t do it, so why should I think I can do it.
There are times when you can do it. Mutual fund managers can’t do it, because they are required to stay invested. Quite often their charter tells them they must have 95% of their funds in the market. Hedge funds can do it, but with their large positions it’s often difficult to extract themselves orderly on short notice. You, as a small investor, can do it - if you want.
I have done it four times. Yes, four. Two of those have been raging successes. Two have been unnecessary, but totally inconsequential failures. Briefly, here is the story:
In 1999 the market looked “toppy”. I used that word several times across the bubble, starting in 1999, when I began moving out. I changed from mostly stocks to mostly cash. At the time Mrs. Goofy and I were planning a very long RV trip, and I knew I would be out-of-touch with the real world for long periods (pre-wireless days), and felt uneasy having most of our worth in the market - so I didn’t. In May of 2001 we took off, and we were quite glad to be out of stocks at the time. (Yes, we got back in after we returned, and after the market carnage was past.)
As an inveterate reader, particularly of economic histories and contemporary business, I watched the gathering storm of 2008 and said to Mrs. Goofy “I’m worried the whole thing could come down.” She is the buy-and-hold forever type, but even she saw the foundation rotting, and said “Sell if you think you should.” I did, almost everything except a few very long standing positions in taxable accounts like Berkshire and Walgreens where the tax hit would have been enormous. The next week Lehman went upside down, Bear Stearns was no more, and the poop hit the rapidly spinning fan blades. We were out, almost commpletely, and I was happy enough just to have the money in a half dozen different FDIC accounts.
No, I did not get out at the very tippy top, nor get back in at the perfect bottom, but I missed the train wreck, and when neighbors were bemoaning their 401k fate and asked how we were, the Mrs. said “He sold it all a couple months ago” with some satisfaction.
So those are my stories of success. Here are the failures. Later in 2008 I got back in, but got scared by a headfake collapse and got back out. As I noted in the post linked below, it cost me $200. Oh, it also cost me about 1,000 points of (Dow) growth, waiting as I did until I was sure the economy was going to mend. But wait, when I said it cost me 1,000 (Dow) points, I am reminded that I saved myself about 5,000 points by getting out in the first place, so I do not beat myself up too harshly.
My second failure came later, when Republicans threatened to shut down the government over demands for instant budget balancing. I thought them both irresponsible and intransigent, and while I was half right, the shutdown was averted and the market did not tank. (I expected macroeconomic consequences if the government shut down for an extended period, OR if their prescription for reduced spending at a time of economic distress was followed.) Since it did not happen, I cost myself the trading commissions and got back in quite quickly.
Now much of my “trading” happened in tax free accounts of both my wife and I, where we socked away the maximum throughout our working careers, so there were no tax consequences. That was not true in 1999 and 2000, when some rather outsize gains in AOL and other 90’s darlings cost me six figures in taxes more than one year to exit. (Am I sorry that I sold AOL at $120 and paid the taxes? Heh.)
So obviously there are tax consequences to be considered, and there may be other things too. I’m not advocating pulling the big trigger at every little twitch and turn of the market, but neither do I think it’s wise to say “I will never sell, because the market will always take care of me.” That wasn’t true of anything in 1929, it wasn’t true of the NASDAQ in 2000, and it wasn’t true (at least for a while) of the general market in 2008. Five years is a long time to hold your breath while you’re under water. A decade is even harder.
I do think the market is ahead of itself, which is different than irresponsibly toppy, and I do not see any macroeconomic collapse on the horizon (absent a nuclear attack from North Korea or something), an in fact I am more aligned with your thoughts in your recent post about ‘inflation.’ That said, I am being more watchful than not these days, and while I may miss the end of the bull and not be so lucky as these past times, I am also not going to go to sleep and pretend all will be OK no matter what.
You can, occasionally, time the market. I know it can be done. Not perfectly, obviously, and not always, but also not “never.”
I remember vividly, in November 2008, an economic expert forecaster being interviewed on one of the financial channels, and being asked what positions he’d recommend the viewers being in at that time, and he famously replied, “Cash, and the fetal position”. Everyone thought he was so clever, but he was totally, absolutely, completely WRONG!
You complain about Tom Gardner making a call for a market turn a year ago and having been WRONG! Someday he will be right, and a rapacious bear can knock the market down 25% or better. Only time will tell if an early call is more damaging than a stick-it-out philosophy, but I would not be too harsh in my criticism, having done exactly the same thing myself following the 90’s (overheated) bull.