Every market timer believes that there are signs and signals that the market is about to make a move in one direction or the other. There is some evidence that individual indicators may have some very short-term predictive power, but this is completely inconsistent with a long-term strategy. Day and options traders may be able to profit from such signals, but you cannot do it. You have a regular job, and you cannot watch candles move up and down all day every day the market is open.
There may be times every decade or so where irrational exuberance rules the day, and the great minds of the age are cautioning against buying into the market. At present, Mr. Ray Dalio sees “asymmetric risk” in the markets, and Mr. Buffett can’t seem to find much to buy because everything is too expensive, and Professor Shiller is concerned with the extent to which multiples are stretched. That may be a good time to become more “defensive” in your asset allocations. The problem with this idea is that you may well miss a great deal of upside if the market goes off on a parabolic run before it falls off a cliff. It is your portfolio, and it’s your sleep that you need to pass.
The gambler’s curiosity is deeply embedded in human psychology, and many cannot resist the allure of predicting an unknowable future. It must be remembered that indexing has become the most popular investment strategy among retail investors for a reason: It works. Active portfolio management is a gambler’s bet.
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Last Updated: 6/25/2018