Time to Stop Market-Timing?

The investment world has become increasingly focused on the short term in recent years, with investors trading in and out of stocks at a rapid pace. But MarketWatch’s Jeff Reeves says he’s learned his lesson, and will try to kick his trading habit in the New Year. 

“We think we’re smart; we think we understand Wall Street. That’s why we trade,” Reeves writes. “But we often trade too much, getting out of good positions too soon or getting into bad positions too early. Blame it on our lack of access to high-priced tools and analysis, blame it on investor psychology, blame it on media outlets like this one that overload you with commentary. But whatever the cause, most retail investors are their own worst enemy.”

Reeves references data from The Wall Street Journal’s Jason Zweig, who recently noted that, despite all the economic headwinds, “The classic ‘balanced’ portfolio favored by prudent investors — 60% in stocks, 40% in bonds — is up 11.2% over the past 12 months and 10.4% annually for the past three years.”

In addition, Reeves notes that most active managers “chronically underperform” their benchmarks. In 2011, 84% underperformed, and he says 2012 is looking similarly disappointing. And, he says, “market timing is a tricky business” — particularly when correlations are high, as they have been for some time — and trading fees can take a chunk out of your returns.

Reeves says he won’t stop managing his own money or trying to pick winners. But, he adds, “in 2013 I will try to do a better job of letting my bedrock portfolio of passive funds do their job. I will also remember that human nature is to buy high after a big run and sell low when the panic of a crash is at its worst.”


Comments are closed.