Here bottom, bottom.  Where are you?????

Why is it that so many in the financial industry obsess over market bottoms or market tops?

Does it really matter if one can predict the timing of an exact turn in market direction?  Is there anything to gain by doing so?

With all the attention of the media and the pundits both, one would think there would be immense riches awaiting those who can predict such things with stock market timing.

Aside from the little problem of really being able to predict the exact time a market turns, doing so really does not add up to much.  At the end of the day, market timing does not really work, as such investors invariably miss opportunity by waiting too long or moving too quickly.

For example, I suspect many of you readers would have never guessed that on the Monday following Bear Stearns’ dramatic collapse, the market would have put in a bottom.

In other words, chances are most had positioned portfolios conservatively with increases in cash and short positions.  That’s unfortunate, as the market has only done one thing since that event, and that is to increase in value.

Timing is not an easy thing to do, so why bother?  Even when correct, there is a very good chance that a mistake will be made in the immediate aftermath.

Take, for example, the bear market conditions of 2002.  I remember those days very clearly as it was a special time for me and the launch of my own newsletter, The Rational Investor.

In October of that year, investor fear had risen to fever pitch.  The Federal Reserve was cutting interest rates to essentially zero, and many thought we were falling over the deflation cliff (the irony today is that most look at that period as pulling the trigger on today’s inflationary gun).

Nobody wanted to buy stocks, and yet a big bet on stocks with some leverage resulted in a gain of more than 50% for my model portfolio in less than 2 month’s time.  Unfortunately the market retreated in the first quarter of 200,3 and much of those fantastic gains were lost.

Try as I might, I mistimed the correction by liquidating stocks in mid-December and then compounded the mistake by re-entering the market in mid-January.  I knew a correction was coming, but my attempt to time the market ultimately cost me in performance lost.

I learned my lesson and stayed aggressively long in advance of the real bull rally that began in earnest in early March.  I could have accomplished much more by simply staying invested.

Flash forward to today…

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Flash forward to today, and we appear to be experiencing a similar type of environment.  The market rallied aggressively off its lows and is now building a strong base around the S&P 500 1,400 level.

The prediction machine is now in full swing.  Will we retest the lows or are we building a base for a new bull rally?

Who cares!

The market is going to do what it is going to do, and timing does not work.  Typically staying invested regardless of conditions is a winning strategy for the long term. Going further, applying a buy and hold strategy with mutual funds makes even more sense.

Dan Weiner’s Independent Adviser for Vanguard Investors is a great tool for doing so.

One benefit of mutual funds is that if you do insist on attempting to time the market, you can do so by tweaking your allocations to different funds.  This is a far better approach than simply timing the exact top or bottom of a market.

Industry dynamics can and do change, so it does make sense to adjust from time to time.  Just don’t go crazy is all I ask, and keep those changes to a minimum.

One change being made in Dan’s portfolio is a reduction in holdings in the health care space.  The election is fast approaching, and with new politicians on the scene, changes may be apace.

Properly valuing those changes will be difficult at best, hence the reduction in that position.

There are more suggestions that Dan has for his subscribers, but I can’t give away all of his secrets.  You will have to check it out for yourself.

The lesson today is don’t time the market.  It just can’t be done.

For over 17 years, independent Vanguard "watchdog" Dan Wiener has been telling subscribers to his Independent Adviser which underperforming, poorly run, undiversified or tax-inefficient funds to avoid AND giving them the best Vanguard investments for their money. In fact, the recommendations in his Growth Portfolio earn a 144% advantage over the typical Vanguard investor! Don’t miss the chance to gain this competitive advantage for your portfolio. Click here to accept a risk-free trial to The Independent Adviser for Vanguard Investors today.