Myth #2: We can predict the timing and duration of the market’s ups and downs

MARKET TIMING

A majority of investors have been led to believe that their investment manager is constantly analyzing the thousands of stocks in the market and that the result of this analysis uncovers when the market will go up and when it will go down. Putting investors in the market when it is up and getting out when it is down is called market timing.

There is no academic evidence whatsoever that anyone can time the market consistently enough to beat the market. A recent study from McGraw Hills Financial Communications Chart Source shows why.

WHY MARKET TIMING DOESN’T WORK

October 1, 1990-September 30, 2010

5040 Stock Market Trading Days

Over a 10 year period missing just the best 10 days cuts your return almost in half. Can you really believe that there is an investment manager who time the market so precisely that they capture the 10 best days in their moving in and out of the market?

Myth #1: We can identify stocks that will go up in the future

Myth #3: A manager’s track record is a strong indication of future performance