The Great Mutual Fund Trap: How Americans Are Losing Billions to the Mutual Fund and Brokerage Industries-- and How You Can Earn More with Less Risk by Gregory Baer & Gary Gensler

Author:Gregory Baer & Gary Gensler [Baer, Gregory]
Language: eng
Format: mobi
Tags: Finance
Publisher: Crown Publishing Group
Published: 2002-09-23T16:00:00+00:00

Chapter 12

Bad Timing

“Very simple was my explanation and plausible enough—as most wrong theories are!” —Time Traveler in H. G. Wells, The Time Machine

Beyond fundamental or technical analysis, investors also try to beat the market with another strategy: market timing. “Market timing” includes: (1) increasing or reducing stock holdings based on a prediction of whether current market prices are collectively too high or too low, and (2) shifting assets from one sector of the stock market to another based on a prediction of which sectors will outperform or underperform. Discussions of market timing dominate the airwaves. Examples of the first type of forecasting include:

• “Has the market hit bottom?” • “Is this a dead cat bounce?” • “Our chief economist is raising her model equity allocation from 70 to 80 percent.” • “It's time to take some money off the table.”

Examples of the second strategy include:

• “Technology is due for a rebound.” • “We believe retailing is a good defensive play at this point.” • “I believe that the chip sector is going to lead this market up.” • “The financial services sector is currently undervalued.”

All of these statements assume that investors are poised and ready to decide daily whether to move in or out of the market, or some sector of the market. Each of these questions and statements can be heard or read in the financial media every day. Every day, you are being told that it's time to get in or time to get out (or both). In other words, every day you're being told that you should be paying all the costs of trading in order to capitalize on the latest forecasted market movement.

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