The problem with market timing

Wayne and Gary had the worst suits of any company management team I’d ever met.

Wayne was the CEO and had a green suit and a mullet hairstyle. Gary was the CFO and had a brown suit.

They mismanaged a loss-making internet company that, at its peak, was briefly valued by the stock market at ~£1 billion in the dotcom boom in 2000.

Names have been changed to protect the guilty so let’s call the company “Internet-PoS.com” (IPOS).

It was 1999, I was a junior working in corporate finance and I was in a meeting with Wayne, Gary and my boss.

Shit flows downhill and I was at the bottom. My job was to pour the tea / coffee, carry the MD’s briefcase and turn whatever fiction resulted from the meeting into an excel spreadsheet / powerpoint slides. It’s a dirty job but someone’s gotta do it.

Fast forward three years to 2002. My career had gone tits up temporarily stalled. The stock market had been falling for 2 years and so had my portfolio. I was looking for a way to go short and make money from prices going down.  But which company to short?

I then remembered IPOS which was fast burning through its cash pile. I did some research.  It was only a matter of time before it went bust.

I opened a spread-betting account, put on my short position and waited. Unfortunately the price went UP and my position went loss-making. I took to the internet and posted on an internet bulletin board that IPOS would be bust in 3 months time to anyone that would listen.

Unfortunately no one was listening. It’s a feeling that I’ve gotten used to over the years and one which stood me in good stead when I started blogging.

Shortly after that the stock spiked up. It was at that point that I fully realised that the market could stay irrational longer than I could stay solvent.

If you buy (go long) a stock, you can only lose your purchase amount. But when you go short via spreadbetting (or borrowing a stock to sell) your potential loss is unlimited as there is no upper limit on a share price. Fearing the prospect of unlimited loss, I closed out the position and took my loss on the chin.

Three months later IPOS went bust and the stock went to zero.

Moral of the story: you can be dead right about the facts, you can correctly predict the future and still lose money trading. 

Short term trading is dangerous. Long term investing is much safer. This is why I say you should get rich slowly.


You are here

In the first week of February 2021, I called the top of the market.

This followed the Gamestop story, Bitcoin frenzy plus several other signs of speculative excess. I said then that, whilst they don’t ring a bell at the top of the market, a major market crash was coming and that we were somewhere near the top of the bull market that has run since March 2009.

I could of course be wrong. The bull market could run longer. Even then the eventual reversal process could take weeks, months or years to play out. It could be a sudden blowout, a flash crash like Q1 2020 or a slow puncture like 2000-03 where the market falls slowly over several years.

Let’s define our terms. When I’m talking about high valuations and speculative excess, I’m talking about US large cap equities, the FAANGs, big data, Artificial Intelligence, biotech, robotics, remote working, anything with network effects, social media, platforms for the gig economy, de-centralisation and blockchain. These are the stocks that rocked in 2020:

If you own a global tracker fund such as the Vanguard Global All Cap Index fund, you own over 6,000 different companies in all industry sectors across the world.

If we’re going into dotcom bust 2.0 (version 1.0 was 2000-2003) then a lot of those different companies should offset / mitigate the stuff that’s going down. That’s the beauty of diversification.

What to do? For most people, it’s best to keep calm and carry on. Monthly $/£/€ cost averaging is your friend.

Staying out of the stock market altogether would be like leaving Glastonbury on a sunny Saturday afternoon just because a few people started drinking the Kool Aid (or should that be cider?) too early. It was always gonna happen and we shouldn’t let that spoil the rest of our weekend.

If we step back and get some perspective, we are in a time of spectacular technological progress. The pandemic accelerated this. The fact that we created a vaccine in a few months should alert you to the amazing scientific progress going on right now.

Over the long term, human progress drives long term stock market returns. Technological progress is the signal, market volatility is the noise. In the short term, the noise drowns out the signal. It’s never a smooth upward journey. Random noise is, by definition, unpredictable.

As someone smarter than me once said: there are only 2 types of market timers: those that can’t do it and those that don’t know they can’t do it. So why, you may ask, am I predicting a bear market when I say that market timing is impossible?

Because forewarned is forearmed. The stock market is a roller coaster ride and it’s time to buckle up and strap in. There’s a simple way to avoid losses and that is to buy and hold forever.

The market will test our resolve in the months ahead. Are you ready for that?


The Escape Manual is explained * here *


6 comments

  1. “Unfortunately no one was listening. It’s a feeling that I’ve gotten used to over the years and one which stood me in good stead when I started blogging.”

    My sentiments exactly.

    I called the Tesla bubble right last year but not before the share price more doubled! Even at today’s price you’d be sitting on a handsome profit.

    So maybe if every decision you make and instinct you have is wrong you should do the exact opposite and get rich that way

  2. ladyaurora · · Reply

    Thanks, I’ve been buckling up recently. Making sure I’m not overly exposed to equities, which I’m not.
    Still a sizable amount which could halve😳 in value. During the 2020 breif crash, i suddenly felt very secure I had money elsewhere in safer havens. Cash, linkers and a rental property .

  3. I’ve let a 5% cash position accumulate but I’ll probably be back to 100% equities VWRL come new tax year.

    Equities seem expensive but other assets are much worse (cash, rentals, crypto).

  4. This past year has been a great lesson for me. No matter how smart we’re sure we are, we can’t tell where things are going – only where they are. Things are expensive. And crazy. And unreasonable. That we can be fairly sure of. But guessing when that will change is a fool’s game, hence “the market can stay irrational longer than I can stay solvent”. I wanted to short Tesla. I want to short Bitcoin. But if Warren Buffett says he can’t tell when it’ll drop and doesn’t short anything, that’s my signal to do the same. Despite our insistence that “THE END IS NIGH!” I think “buckle up and strap in” (and don’t jump out while the roller coaster is in motion) is indeed the best advice.

    I’m more curious as to the “how” of the next crash. Because the truck that hits us is rarely they one we’re looking for. My bucket of popcorn awaits the show!

  5. el Deco · · Reply

    Curious why the 3 numbs that can make you a millionaire post has been removed ?

  6. I’m re-reading ‘Think Like A Freak’ and it’s troubling how many times the analogy of experts correctly predicting ANYTHING is said to be no better than ‘Chimpanzees throwing darts’. Timing the market is now and always has been a fool’s game. All markets crash, er, um, ‘correct themselves’ but no one knows which ones or when.

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