Why Market Timing Is A Fool’s Game

by Dan Wiener | January 23, 2012 12:10 pm

Why Market Timing Is A Fool’s Game

If getting face time on TV is what counts, last year was a good one for pundits. But if being right is most important, there’s less to celebrate. Meredith Whitney came up short with her prediction of massive defaults in the municipal bond market[1]. And PIMCO bond guru Bill Gross issued a mea culpa of sorts after predicting the demise of the Treasury market. To be fair, I also thought rates were headed higher, and Gross was just the most prominent of hundreds of investment experts calling for an end to the Treasury rally.

Still, if there’s one thing you should never try to do, it’s predict where the market is going over a short period of time. And when I say short, I mean days, weeks, months or even a year or two. Market timing is a fool’s game. So before you make any investment decisions based on the predictions you hear for 2012, consider the following:

Foolhardy Prediction #1: The Dow Drops 16%

You’d think that coming close to collapse, being rescued by the American taxpayer and continuing to run a business that can’t seem to get out of its own way might be cause for a bit of humility from the likes of Citigroup (NYSE:C[2]).

Yeah, right.

On December 31, 2010, The Wall Street Journal reported that Citi’s technical analysts were predicting no less than a 16% decline for the Dow in 2011. Oh — and that the first day of trading in 2011 would be the peak.

Given that the Dow ended the year up 5.5%, at 12,217.56, and that the first close in 2011 was 11,670.75, I’d say American taxpayers have every right to demand the money they loaned to Citi, with interest, before the bank implodes for good.

Foolhardy Prediction #2: The S&P Drops 7%

Gotta love those technicians. The chief market strategist at BGC Financial LP told Investment News in January 2011 that the S&P would be down more than 7% by the end of February, when it actually ended up 5.5%.

Oops.

So when it comes to market outlooks, leave your  short-term crystal ball, sweeping pronouncements and 15-minute TV show ego trips for the bathroom mirror.

Endnotes:
  1. prediction of massive defaults in the municipal bond market: http://investorplace.com/2011/12/biggest-market-blunders-2011-meredith-whitney-john-corzine-rimm-nflx/
  2. C: http://studio-5.financialcontent.com/investplace/quote?Symbol=C

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