Market Timing Works

Written by The Dividend Guy on October 23, 2007

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Market Crash

…only if you are lucky. I was reading some back posts by one of my favorite bloggers out there, Canadian Capitalist, on a topic that I have been thinking about a bit these days. In his post he speaks about market timing and how difficult it is to do it right. Given that we just hit the anniversary for Black Monday I am sure many investors were holding their breath when buying or selling securities. I have to admit when I entered the trade to buy a small-cap ETF for my dividend portfolio the thought crossed my mind to hold off just in case it happened again. I caught myself and entered the trade anyway as I have never been able to correctly time the market in the past and this month was going to be no different.

In the book, The Little Book of Value Investing (aff) there is a very interesting quote that really blows away the case for anyone who thinks that they can time the market. It goes like this:

…between 80 - 90% of the investment returns on stocks occurs 2 - 7% of the time - Christopher H. Browne

Think about that for a moment - on the high end of the scale you need to ensure you open a position and subsequently close it on exactly the right 25.55 (365 X 7%) days of the year to get the bulk of the returns. I consider myself a pretty smart guy, but not that smart. I prefer to invest my money in good quality dividend stocks and let it ride, reinvesting those dividends quarter after quarter.


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3 Comments so far

  1. FourPillars October 24, 2007 8:55 pm

    Amen to that!

    Mike

  2. Weekly Dividend Investing Roundup - November 2, 2007 November 2, 2007 7:49 am

    […] this week’s trick or treat version of the Carnival of Personal Finance. My article called Market Timing Works was included (hint: market timing DOESN’T work). 2. The Festival of Stocks, hosted by the […]

  3. Weekly Dividend Investing Roundup - November 23, 2007 November 23, 2007 8:54 am

    […] A few months ago I wrote a post about market timing. The Digerati Life gives the topic some more airtime. Make sure you take a look at the chart […]

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