Gamble Jones

Thoughts on Market Timing

When we were grinding out our financial education, each of us had professors that explained how market timing was rarely successful. The problem is that the trader has to make two correct decisions: when to get out of the market and when to get back into the market. The truth is that on average we would be better off being invested during bear and bull markets. Part of this statement comes from the simple fact that it is difficult to time the end of a correction and the beginning of a bull market. Or vice versa. William Sharpe found that market timers must be right 82% of the time just to match the returns realized by buy-and-hold investors.

Think back to March of 2009. In the midst of financial meltdown and pundits’ warnings of imminent doom, who knew the market would turn on March 9th, running up over 20% in 15 days and initiating one of the greatest and prolonged bull markets in the history of the U.S. stock market?

A study by SEI Investments reviewed all the bear markets since World War II. According to the study, stocks rose an average of 32.5% in the 12 months following the bear-market bottom. Yet, if the bottom was missed by seven days, that return fell to 24.3%. How much would we miss out on if an investor has been stung by the previous drop and has not reinvested for two months? Three months?

Even though the markets have been gyrating over interest rates, China, and even presidential candidate bandwagons, keep in mind that we have invested in quality companies. These companies create value by earning a cash return on equity capital that exceeds their cost of equity capital. This excess return translates into bigger dividends and a higher stock price. We feel these companies can weather the storm of market uncertainty and provide growth in a variety of economic environments.

We do thank you for the trust you have placed with us in managing your assets.


Alison J. Gamble, President
Gamble Jones Investment Counsel