Proof no one can time the market consistently [video]

Not even a legendary economist...

    Market timing is impossible...even for expert investors and economists

    In this expert interview, understand the evidence that supports the argument that market timing is not only impossible, but unnecessary for long-term investment success.

    No one can time the market consistently

    Robin Powell: It’s very tempting to try to time the market — to see if you can get in just before prices started to rise, and out again as they’re about to fall. But you shouldn’t try. Why? Because no one can do it successfully with any degree of consistency.

    Take the legendary economist John Maynard Keynes, for example. Between the two World Wars, Keynes was a prolific investor, mainly on behalf of King’s College, Cambridge, of which he was a Fellow and Bursar.

    Dr David Chambers: Keynes ran a portfolio both for himself and for his college amongst other investors for about a quarter of a century. And one of the key things he learned about investing was the great difficulty of market timing. So, by market timing, we mean trying to pick the points when you should be in or out the equity market as opposed to being in bonds or cash for example, because these were the three major asset classes that were available to him, in addition to property in the 20s or 30s.

    RP: There were several reasons why Keynes, of all people, could be expected to know when to be cautious and when to invest more aggressively. But even he found it just too big a challenge.

    Dr David Chambers: He poured over economic and industrial statistics and indeed he found it the premier economic and statistical service of his day. Despite all those advantages as well as being a great economist, he found it very difficult to time when to get in or out of the equity market. The prime example of that is October 1929, when the London stock market crashed along with New York, he was still very heavily into equities in his portfolio.

    RP: The moral of the story? If even Keynes couldn’t time the market with any real success, the rest of us shouldn’t even try. And we ought to be extremely wary of altering our investment strategy on the basis of what economic experts might say.

    Incidentally, Keynes’s investment record is fascinating on a number of levels. For example, he was one of the first to advocate that long-term investors should invest primarily in equities. He also understood the benefits of overweighting in value and small company stocks long before they became widely accepted.

    David Chambers has written widely on this subject. You’ll find details of his work by going to his profile on the Cambridge Judge Business School website and clicking on Selected Publications. Thanks for watching. Goodbye.

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