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Fundamental knowledge of investments


Editor’s note: Alexander Green notes that the secret to success as a stock investor is not timing the market, but time on the market.

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In my two previous columns (found here and here), I discussed my recent discussion on market timing at FreedomFest in Las Vegas with Mike Turner of Turner Capital Investments in Austin.

Market timing means positioning your portfolio to be in for rallies and bull markets – and out (or short) during corrections and bear markets.

The idea appeals to some investors, especially those without much experience in the real world.

But as I explained in the debate – and in my previous columns – this is completely unrealistic.

Invariably, market timers end up getting it wrong and being in the market during corrections and out during rallies.


This not only results in a low return on investment. It also creates a burden of short-term capital gains taxes.

(Which, by the way, are usually offset by tax-free carryforwards.)

However, even if you plan to enter and exit the market within a qualified retirement plan — where capital gains are tax-deferred — it still doesn’t make sense.

why? Because rational, selfish investors immediately incorporate all relevant information into stock prices.

This includes not only what is widely known, but also what is most likely or widely expected.

(Examples include estimates of GDP growth, increases or decreases in corporate income, and the Federal Reserve’s short-term interest rate policy.)

This should be a fundamental part of every investor’s knowledge and understanding: what will move the market tomorrow is not what is already known today.

New information – and especially unexpected information – moves stock prices every day.

There is simply no way for any human – including Miss Cleo of the Psychic Readers Network – or any system (including Mike Turner) to know or correctly predict breaking news in advance.

Some analysts will claim to have key insights into economic growth, energy prices or the future level of interest rates.

But it is just as likely to be wrong as it is to be right.

Even if someone were preternaturally attuned to commodity prices, currency fluctuations, business developments, pending laws, and the outlook for the global economy, it wouldn’t matter.

why? Because the market also regularly derails unexpectedly.

In 1990, for example, stocks plunged into a bear market after Saddam Hussein’s forces invaded and occupied Kuwait.

Oil prices jumped as investors braced for war in the Middle East.

What system could have predicted Saddam’s actions and the Gulf War that followed? No.

On September 11, 2001, terrorists flew planes filled with Americans into buildings.

The stock market sold out instantly. Then closed for a week.

What system could predict 9/11? No.

In 2008, two of Wall Street’s storied investment banks – Bear Stearns and Shearson – collapsed due to their heavy exposure to subprime mortgages.

Merrill Lynch was also hesitant. (Something that was unimaginable a few days ago.) He threw himself into the arms of Bank of America to avoid bankruptcy.

What system could have predicted this? No.

In 2019, a new coronavirus escaped from China and caused a global pandemic.

This led to mass lockouts, layoffs and business bankruptcies.

What system could have predicted this?

You already know the answer… None.

The secret to success as an equity investor is not timing the market, but time on the market.

No other asset class – not bonds, cash, precious metals, real estate or collectibles – can match long-term performance of a diversified portfolio of stocks with reinvested dividends.

So when a market timer confidently suggests keeping your money in the market during uptrends and out of the market during downtrends, there is only one logical answer.

Extreme skepticism. (Or, better yet, mockery.)

As I mentioned earlier, Turner, while claiming to have profited from exchange-traded funds this year, has shown no evidence of past market prowess to suggest future success.

In fact, he admitted to debate host Mark Skousen that he had changed his approach in recent years.

And let’s be real. Market timers don’t change their system because it works too good.

Given all these facts, you will be surprised to hear Turner’s response to my arguments both during the debate and in an email afterwards.

I’ll cover that in my next column.

good investment


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