Market Timing, Even by Experts, Pays Off Only Modestly

The advice typically given to investors is to “ignore the level of the stock market and never attempt to time it. Meanwhile, “writes Bloomberg columnist Nir Kaissar, “the industry’s brightest lights are doing just the opposite.”

Kaissar cites participants in the recent CNBC Institutional Investor Delivering Alpha Conference who argue that a market correction is in the offing. These include Paul Tudor Jones, Jeffrey Gundlach, and Howard Marks, to name a few.

“So, which is it,” writes Kaissar: “Should investors attempt to time the market or not?” He outlines a few considerations to focus on:

  • Most investors are “horrible” at market timing, not having the benefit of the market knowledge enjoyed by investment heavy-hitters. He cites Seth Klarman and Warren Buffett as examples.
  • “The reward for successfully timing the market over long periods,” he writes, “is more modest than investors realize.” By simulating a market-timing strategy that uses the CAPE ratio for U.S. stocks, Kaissar “beat buy-and-hold 72 percent of the time over rolling 10-year periods since 1926 by an average of 0.3 percent annually.”
  • Another consideration is, he argues, that  passive investors “have been rewarded for doing nothing.”


Kaissar refers to the hefty cash holdings of Warren Buffett’s Berkshire Hathaway—approximately $100 billion, representing 15% of total assets—as a defensive approach. Whatever market timing he has attempted, Kaissar argues, has “likely paid off, but only modestly.”