In a recent article for MarketWatch, financial analyst and journalist Mark Hulbert describes what he calls the “market-timing industry’s dirty little secret: bear markets and increased volatility are good for business.”
The explanation, according to Hulbert, is that it’s difficult to add value when the market is going straight up. “Who needs a market timer during conditions like those?” he queries. But when volatility kicks in and investors get nervous, subscriptions to advisory services tend to spike.
Hulbert shares the following lessons outlined by Fari Hamzei, editor of the Hamzei Analytics advisory service:
- For most investors, market timing is a losing proposition because they will let emotions interfere with decision-making. The only exception is if you have a long history of trading the market and thus have been “battle tested.”
- Investors should rely on an investment adviser with a proven track record, and “never put all your investment dollars in less than 3 to 5 managers/systems/timing alerts.”
- The perfect is the enemy of the good, Hamzei notes, adding that the key is to follow “prudent money management rules” that prevent intolerably large losses.
- It’s important to understand that no one can consistently predict market tops and bottoms. Investors should establish realistic expectations when using a market timing service.
Hulbert underscores how “our emotions are unreliable guides to investing. We have no interest in market timers just when we need them the most, and then—after the market has declined and, in some senses, it’s too late—we suddenly become interested. It’s a classic case of closing the barn door after the horses have left.”
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