Market Timers Agree: Buy Stock

January 7th, 2010 by 

What should you make about the Mark Hulbert article claiming that top market timing newsletters are bullish heading into the new year?  After a 27.76% increase in the value of the S&P 500 (not counting dividends) in 2009, how much further does the stock market yet have to run?  And what does a bullish consensus among market timers mean, exactly?

The Lost Decade for Stocks

Even more impressive than the 27.76% increase over the whole of 2009 is the massive 64.83% recovery in the S&P SPX from March 10 until the end of the year.  Still, those gains pale against the general malaise that hit the stock market over the decade ending December 31st of last year.

As you can see in the chart above, the S&P 500 declined 22.59% (again, dismissing dividends!) over the decade.  Even with the massive gains since March, the S&P is still valued lower than it was in January of 2000.

Stock Timing in a Shifty Market

The newsletters Hulbert selected are notable for their outperformance of three selected benchmarks, namely their performance versus buy and hold investing over various stages of the decade.  Now, you can consider this evidence of market-beating intelligence or luck, but the fact remains these newsletters pulled off a nice feat.  The 5 newsletters surveyed recommend a massive allocation of 97% of your portfolio to stock... a large number indeed.

However, what should you make of any consensus?  Overall consensus would be a bad thing- if everyone believes that the stock market will increase, it likely won't.  There needs to be holdouts who come in later stages of a bull market run to drive indexes still further.  In that vein, a consensus among a larger proportion of investors is more dangerous than a few market timers.

All in all, your money is your money.  Personally, with the lack of major gains in the last 10 years, I feel that new investments aren't quite priced out of the market.  Even with the recent gains, I'll be investing regularly in the new year.  Even if we end up seeing declines in 2010, I feel this will position me pretty well long term.  How about you?



PK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools.

PK lives in New Hampshire with his wife, kids, and dog.

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