So we all know you can't go more than 30 seconds on reddit without someone suggesting an investing "strategy" only to be reminded that it's "market timing" and no one can predict the market. And 99% of the time I would agree. But what if, the other 1% of the time, we CAN predict the market.
The S&P500 is at unique point in time where nearly all metrics indicate that the market is overvalued, many of which are at or near record "highs". Some of these have a 100% historical record of predicting a crash and/or poor long term gains (e.g. Schiller P/E, the Buffett Indicator, etc.). So why would we expect this time to be different?
Now, to clarify, I am not suggesting cashing out or sitting on the sidelines. But for those who have been riding high on the S&P500 for the last decade, has there ever been as good a time to take profits and reallocate with less risk?
A Case in Favor of Market Timing
byu/CuriousCat511 inStockMarket
Posted by CuriousCat511
7 Comments
Valuation can be a useful input, but it’s a blunt timing tool.
1) Metrics like CAPE/Buffett Indicator have decent long-horizon signalling (expected returns), but weak short-horizon timing. Markets can stay “expensive” for years if earnings growth, margins, or rates cooperate.
2) “Taking profits” can be sensible as risk management: rebalance back to target weights, trim concentrated winners, and diversify factors/regions rather than making an all-in call.
3) The main uncertainty is regime: inflation/rates and profit margins drive what “fair value” even means. A second risk is taxes/transaction costs if you churn.
If you’re reallocating, what’s your time horizon (5, 10, 20+ years) and what drawdown would make you change course?
It’s not a question whether you can time the market correctly or close to it once, it’s whether you can do it consistently. It’s very difficult to do even for the professional investors.
Predicting a crash is tricky. There are also better metrics than Schiller or even Buffett.
One of the best in my book is looking at sustainably exponential stocks: lets use a 10 stock sample Berkshire B, Allstate, FedEx, Cummins, Blackrock, Costco, United Rentals, Garmin, Southern Copper, and L3Harris.
Out of all of these, none take particularly massive hits during 2008-2011, and those that do, quickly correct as soon as the initial shock settles down.
Pick stocks with a clear, long-term, statistical trend, and more likely than not, that trend will continue.
There will be short and even mid-term dips and peaks, but that underlying average is the driving force.
IMO, way too many people put too much in companies with unclear or volatile *pasts*, and a lot of these analyses somehow hope to project even a somewhat clear *future*.
My background isn’t economics or trading – but it is paleoecology and ecological forecasting; and in the field, the central tenet is that you can only forecast around 10% of the length of time you have in your hindcast.
The same is true in trading.
How do I know?
Because we stole a bunch of trading analyses (ARMA/ARIMA, stepwise regression and detrending (which… holy crap, if you trade on a short term basis – you *need* to understand detrending), and signals processing) to study ecological trends.
A lot of these analyses somehow analytical metrics traditionally used in trading are extremely simplistic because they have to cater to a general, and usually not mathematically or hard analytical inclined, audience.
So long as capitalism exists the market will always be at a new unprecedented high point eventually. That’s the point. If you think you can predict whrn the markets will fall and when they will swell. Go ahead and try to time the market we can all reconvene on your update post in 20 years.
Now if you wanted to get out of the US markets because you think the country is about to collapse and enter a new civil war that’s another thing.
The problem is that someone could–and definitely did–make your exact same argument at various points over the past decade during this long, long bull run. They would have lost out on massive returns if they had followed their own analysis.
Timing the market is generally bad. I’ve seen doom & gloom posts for the past 4 years and those people missed alot of profits if they pulled out
That said, between the high valuations, bull run that’s due to end at some point, and all the geo-political nonsense 2026 does feel a little dodgy.
What has worked best for me is when I consistently invest within my allocation and rebalance quarterly . When I trade and try and time I always have less gains