Market Timing vs. Buy & Hold: Why market timing fails the test for most investors

Sound Investing

"Buy and hold investors don’t just win on average returns— they win by avoiding the behavioral landmines that sabotage long-term success.” Paul Merriman

In this podcast Paul addresses one of the most important investment decisions a do it yourself investor will make.

Paul opens the discussion with comments from a Forbes article from 2008 that discusses Warren Buffett’s market timing decision he made to get totally out of the market in 1969 and back aboard in 1974.

The podcast (with the help of Chatgpt, includes a list of 10 common reasons market timing doesn’t work for amateur investors.

1. Missing the best days

2. Emotional decision-making

3. Perfect timing is impossible

4. Higher costs and taxes

5. Volatility is high during recovery

6. Recency Bias

7. Focus on noise, not timing signals

8. Overconfidence

9. Loss of Compound Growth

10. Data shows long-term investing wins

Paul challenges AI that there are many emotional disadvantages with timing.

The most important performance and non performance hurdles:

1. Decision-making: Timing requires lots of work and buy and hold almost none.

2. Mistakes: Market timing suffers lots of mistakes and buy & hold rarely wrong in the long term.

3. Emotional Toll: Timing has lots of emotional challenges and buy & hold is more peaceful.

4. Behavioral Risks: Timing has lots of behavioral risks and buy & hold is simple.

5. Time Commitment: Timing takes time and action and buy & hold is rarely touched.

6. Expenses: Costs and taxes are both lower with buy & hold.

7. Timers must be more resilient with many decisions being wrong.

8. Financial Results: A few timers may perform well but all buy & holders are likely to have “won”.