"No One Can Time The Stock Market"

TECHNICAL VIEW.  The Principle of Technical Analysis.  I don’t want to jinx myself but I can’t keep quiet.  Not after hearing the usual Wall Street mantra again this morning.  That is, that no one can time the stock market so it’s always best to ride out its ups and downs.  I mean this type of misleading & confusing information is one big reason why I started this stock market letter back some 18 years ago.  Part of my motivation, to quote myself, was to “unveil the mystery surrounding the stock market.”  I saw numerous misstatements and unfounded general beliefs which I just thought were plain wrong being foisted on the investing public, not large institutional investors but aimed at individual investors.  After working as a stockbroker/financial consultant for 15 years, I realized that Wall Street kept nurturing the stock market’s mystery.  Why?  For Wall Street’s best interest.  Why pay a stockbroker or brokerage firm big bucks if individuals could understood for themselves the market?  No, only if individuals felt (and kept feeling) overwhelmed by the market’s workings would there be a need for advisors and a way to charge big fees. 


Anyway, I don’t want to get off track.  I just want to comment on the one line of reasoning which we’ve all heard repeated so often that most now take it as fact.  That is that no one can call the tops or bottoms of bull and bear markets.  We hear it from about 50% of the mutual fund managers, market strategists and others every time they come on TV.  Many begin with something like:  “Since no one can call a bottom, …”  Not only does this perpetuate the need for market advisors it also justifies the roller coaster performance of these money managers.  Hey, it takes the pressure off them, right?  As long as they are doing about as well or as poorly as the overall stock market, then they are doing their jobs well.  At least that’s the thinking.


But then what about all the traders out there?  Why did hedge funds start then?  If no one can time the market what about this whole cadre of people trying to outperform the market?  And what about those fabulously successful speculators we hear about?  Some do time the market correctly is my answer.


Schwartz View:  I’m sure many others did as well so I’m speaking just for myself now.  After studying the stock market for 35 years, all facets from timing to investment themes and much, much more, I was able to correctly identify last year’s market collapse as the beginning of a bear market pretty early on.  In spite of those who say no one can do such a thing.  And I stepped up, following my own reasoning and got Lucy’s 401k or 403b or whatever it is into 100% cash.  Right before we went away on our annual Christmas beach vacation last year.  And thus kept her retirement account from falling about in half!  With my managed accounts, I followed generally the same path, figuring my top priority was protecting our downsides because the market was turning bearish.  Since then I’ve been able to keep mostly to the sidelines, watching this bear market unfold, gather steam and keep on rolling.  This in spite of hearing the “Trillion Dollar Man,” BlackRock’s Bob Doll, incorrectly call a bottom in March, Mad Man Cramer call a bottom in July and other bullish, skin-in-the-game advisors come on CNBC and say they are buying, that a bottom is near or building a bottom is a process and you’d better get in now “…since no one can call the bottom.”  Well, the bear market continues and we keep seeing further and deeper declines.  My sense, as I’ve been writing for months now, is that this bear market will last for at least two years or until at least next October simply because what’s hit us is the worst mess since the Great Depression of the 1930s.  So why wouldn’t this bear market last at least as long as the last Papa Bear market, the two year long drop in 1973-1974? 

Bottom line, while I don’t expect to call the bear market bottom before it arrives or to the day (except in hindsight) I believe with the tools, skill sets and experience I’ve now got, after studying the market’s primary trend, history, psychology, value, technicals, etc. for decades, I should be able to identify the bottom reasonably well.  Part of my overall game plan entails trading most possible rallies so when one does prove to be the real thing, I’m in with at least one foot near the start.  Then, as I see prices rising, I should be able to get in more heavily.  Bottom line, I believe anyone who’s willing to put in the time and effort should be able to quickly identity tops and bottoms in the stock market, totally counter to what we always hear.  Oh, one last point.  Be careful of the fear that these always 100% invested advisors love to leave you with (just like dentists do).  That is the mantra that if you miss the first days of a new bull market, you’re in trouble.  Sure the first days up are normally exciting and big.  But bottoms generally are retested, providing the sharp-eyed observer more than one reentry point.  And bull markets run for years not just for a couple of days.  So don’t worry, be happy, if you’re now 50% or more in cash on the sidelines.  Just stay tuned here.  Because one way to indeed miss the bottom is to lose interest in stocks during a long bear market.  Go ahead, lose interest if you’re 100% invested now because you’re already in a bind.  But don’t lose interest if you’ve played out this hand fundamentally correct.  If you’re saved yourself a bundle by already going against the Wall Street mantra of staying invested because no one can time the market,” then stay in touch with stocks for your reentry point.  One good and easy way to do so is by just reading this letter each day.  It’s only a couple pages long, doesn’t take much time to read, you’ll learn something new most of the time AND you’ll be aware pretty quickly, & ready to profit, when this market turns up.

Posted 11-11-2008 8:18 AM by Richard Schwartz