The Myth of TIME IN the Market

Ever heard the sayings ‘right place at the right time’ or ‘wrong place at the wrong time’?

Of course you have.

We use these in recognition of how luck and timing can play a role in our lives.

An investor who put their life savings into the US share market in August 1929, was most definitely in the wrong place at the wrong time.

This poor chap, believing the industry myth of time in the market, was condemned (figuratively speaking) to capital punishment…it would take 25 years before the Dow recovered its pre-1929 crash level.

Whereas the person who invested heavily into the market in mid-1932 was ‘in the right place at the right time’. Their money was as free as a bird…soaring higher on the winds of a rising market.

Discover five ASX-listed firms that have been beaten down during the crisis…with the potential to rally strongly as the market recovers. Click here to learn more.

Tt’s timing — NOT time in

The ‘time in’ myth has been a very clever piece of industry marketing. It doesn’t even stand up to the most basic test of common sense. Would you prefer to invest a few months prior to or several months after a market correction?

Recent market action — a quick down followed by a strong recovery — has people believing the Fed can walk on water and turn water into wine.

This only serves to reinforce the time in myth. Don’t worry, the Messiah will save us from ourselves…investing is now a risk-free proposition. If you believe that then call me, I have a bridge for sale in Sydney.

My book How Much Bull Can Investors Bear, looks at…

the math to prove that it’s timing — NOT time in.

Here’s an edited extract:

In my experience, people tend to “smell the sizzle and ignore the heat”.

By this I mean they’re seduced by the upside and largely ignore the downside.

Assets have an embedded downside risk.

Yet, few people really factor this into their calculations…until it’s too late.

That gaining of wisdom comes at a very high price…financially and emotionally.

John Hussman, of Hussman Strategic Advisors, has recently published a Strategic Allocation White Paper.

If you’re into well-researched technical analysis, then reading this paper in its entirety is definitely worth your time.

Hussman takes aim at the traditional investment industry’s asset allocation approach…

This is from the White Paper introduction:

“Two popular approaches for long-term investment planning are ‘target date’ strategies that set allocations to equities and fixed income based on the number of years until retirement, and ‘fixed allocation’ approaches that invest a constant percentage of assets in stocks, bonds, and money-market securities, with little or no variation.

“The striking feature shared by these approaches is that the amount invested in stocks, bonds, and other securities has absolutely nothing to do with investment valuations or prevailing market conditions; even if the securities being held are profoundly overvalued or undervalued relative to historical norms. Indeed, the assumptions made by investors and pension funds about likely future investment returns are often set based on average historical returns, even when prevailing market valuations are nowhere near the valuations that produced those historical returns.”

The industry tells you there’s no bad time for good investments.


What about if you were seeking advice in, say, September 1929 or September 1987 or January 2000 or December 2007?

These are the periods just prior to the market’s most epic crashes.

Anyone who invested at any of those times would probably not agree with the industry’s propaganda.

It’s an insult to a person’s intelligence to suggest there’s never a bad time to invest. The premise doesn’t stand up to even the most basic of scrutiny.

This is why John Hussman’s White Paper is such a refreshing change to the nonsense peddled by the industry’s marketing machinery.

For those who don’t have the time or inclination to read his work, here’s my abridged version.

John Hussman has developed a model that assesses the risk versus reward trade-off between three asset classes…

  • Stocks — S&P 500 Index
  • Bonds — government bonds 
  • Treasury bills — cash

Here’s a couple of examples from the White Paper. The charts are US date stamped. 5 January 1973 is written as 1/5/1973.

The BLUE line is the risk-adjusted return of US shares…the range is from MINUS 2% to POSITIVE 6%.

The YELLOW line is the risk-adjusted return of government bonds…the range is from POSITIVE 2% to POSITIVE 6%.

The RED line is the risk-adjusted return of Treasury bills…the range is from POSITIVE 5% to POSITIVE 4%.

Port Phillip Publishing

Source: Hussman Strategic Advisors

[Click to open in a new window]

The preferred asset allocation is determined by which risk-adjusted asset class offers the best potential return on the matrix. This is shown by the dark blue dashed line.

The horizontal index shows it is bills, followed by bonds.

The ratio of bills to bonds is then used to create the asset allocation pie chart in the bottom right corner.

According to the risk-adjusted asset allocation model, an investor in January 1973 would have been better off being out of the US share market.

Here’s what happened to the Dow Jones index during that period.

Over the next two years, the Dow plunged 40% in value.

Port Phillip Publishing

Source: Macro Trends

[Click to open in a new window]

After a substantial correction, the dynamics of the risk-adjusted model changed.

Here’s the asset allocation model date stamped 4 October 1974.

Shares offered far more reward than risk.

The model recommended a 100% exposure to shares.

Port Phillip Publishing

Source: Hussman Strategic Advisors

[Click to open in a new window]

This is what happened to the Dow Jones after October 1974.

Port Phillip Publishing

Source: Macro Trends

[Click to open in a new window]

There was an initial drop — which just goes to show you can never pick the bottom. But anyone who adopted the recommended asset allocation was rewarded with a 50% return over the next two years.

This is what I mean about timing being crucial to your long-term financial wellbeing.

Those who adopted a “time in the market” approach had to hold on tight during the plunge and then have the nerve not to sell. This, believe me, is far easier said than done.

In the unlikely event they managed to do that, their reward was a zero return over a four-year period.

Whereas those who opted out of the market in early 1973 sidestepped the plunge. Their portfolio of bills and bonds earned around 6% per annum (for two years).

Then, when the market was offering far better value, they participated in a 50% recovery.

In simple maths, that’s a 62% return over the same four-year period.

That was then. What about now?

A bad time to invest in markets…

While almost everyone is piling into the market ‘safe’ in the knowledge the Fed won’t let anything bad happen, this is the most recent — as of 13 November 2020 — reading of the Hussman Asset Allocation model.

  • Treasury Bills (cash) — 92%
  • Shares — 8%

Port Phillip Publishing

Source: Hussman Strategic Advisors

[Click to open in a new window]

Next to nothing interest rates make the marketing job of the funds management industry so easy.

The one-sided message is you earn nothing in the bank.

But what they don’t tell you is you could earn a whole lot less than nothing from shares when the most overvalued market in history shows the Fed who really is the boss.

Time in the market is a myth that — thanks to the Fed’s decade long efforts to artificially prop up the market — has become an established fact.

Those who believe there’s no such thing as a bad time to invest in markets are destined to look back and philosophically put their losses down to ‘being in the wrong place at the wrong time’.


Vern Gowdie Signature

Vern Gowdie,
Editor, The Rum Rebellion

Vern has been involved in financial planning since 1986.

In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners.

His previous firm, Gowdie Financial Planning, was recognised in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia.

In 2005, Vern commenced his writing career with the ‘Big Picture’ column for regional newspapers and was a commentator on financial matters for Prime Radio talkback.

In 2008, he sold his financial planning firm due to concerns about an impending economic downturn and the impact this would have on the investment industry.

In 2013, he joined Fat Tail Investment Research as editor of Gowdie Family Wealth. In 2015, his book The End of Australia sold over 20,000 copies and launched his second premium newsletter, The Gowdie Letter.

Vern has since published two other books, A Parents Gift of Knowledge, all about the passing of investing intelligence from father to daughter, and How Much Bull can Investors Bear, an expose on the investment industry’s smoke and mirrors.

His contrarian views often place him at odds with the financial planning profession today, but Vern’s sole motivation is to help investors like you to protect their own and their family’s wealth.

Vern is Founder and Chairman of The Gowdie Advisory and The Gowdie Letter advisory service.

The Rum Rebellion