Why “timing” the market is a “loser’s game”

Overview

Marcus Padley is surely Australia’s most prominent advocate of market timing. He’s explicitly, repeatedly and vociferously claimed not merely that he can successfully “time” the stock market: with his help, you can, too! “If you have fallen for the industry serving brainwashing about long-term investment being clever and ‘trading’ being reckless,” Keith Ford recently quoted him, “then you need to re-educate yourself – you can time the market” (see 3 pieces of investing wisdom that need to be chucked out (and 1 that should stay), 16 June).

That’s not all. His first claim begets a second one: over the long term his approach will reliably outperform the “buy and hold” investor. “Timing the market,” Padley thus claims, consistently beats “time in the market.”

In this article, I assess – and, by the Sagan Standard, which I’ll define and justify, reject – these two key claims. I emphasise six key sets of facts which Padley mostly ignores (and, occasionally but tangentially, dismisses or denies):

1. Statistically, the claim “I can consistently and gainfully ‘time’ the stock market” resembles the claim “I can reliably profit from sports betting or casino gambling.” The latter’s credibility is almost always extremely dubious.
2. In the short term, the latest AI models can’t consistently “time” the market; and in the long term, they underperform buy-and-hold. Unless Padley can trade more successfully than AI, he won’t outpace it – and can’t dependably outperform buy-and-hold investors.
3. The most prominent, influential and successful investors of the past century all explicitly disclaimed any ability to “time” the market. What does Padley grasp that apparently eluded them?
4. Virtually all finance academics since the 1960s have dismissed the possibility that anybody can consistently “time” the market and reliably outperform “buy and hold.” If Padley’s correct then this consensus has long been wrong.
5. Both the Australian Securities & Investments Commission (ASIC) and U.S. Securities and Exchange Commission (SEC) warn against attempts to “time” the market. If Padley’s right then these regulators’ cautions are misguided.
6. The track record of market-timing newsletters is poor: on average, they underperform the S&P 500 Index and buy-and-hold investors. If Padley’s consistently matches a credible benchmark – never mind outperforms it – then it’s among a miniscule minority.

Individually, each of these sets of facts counters Padley’s opinion; collectively, they overwhelm it.

Assuming decent respect for logic and evidence – and appreciation of random chance and thus of unpredictable fluctuation – the conclusion is indisputable: nobody can consistently “time” the market, and “time in the market” reliably beats “timing the market.” 

In Charles Ellis’ words, which I’ll unpack, market timing is a “loser’s game.”

This conclusion should surprise nobody. The only wonder is that anybody could believe otherwise. Economists’ forecasts of consumer price inflation and the RBA’s Overnight Cash Rate, for example, are so erroneous that they’re useless. Moreover, they’ve usually been biased, and occasionally vulnerable to severe and even catastrophic failure (for details, see Stop obsessing about the RBA, 14 February 2025 and How experts’ “systematic mispredictions” improve our returns, 6 August 2024).

According to Richard Holden (“RBA is still gazing into defective crystal ball,” The Australian Financial Review, 12 August), the central bank “is no better at forecasting than the private sector astrologists at major banks masquerading as so-called ‘market economists.’”

Nobody – including the RBA! – can dependably “time” the RBA’s policy. On what basis, then, can anybody credibly claim to “time” the stock market?

To my knowledge, Padley cites no analysis – never mind any widely-respected one – which substantiates his claims; he certainly doesn’t cite or conduct analysis which addresses - never mind refutes - any of the above six sets of facts. To my satisfaction, no such source or analysis exists.

Instead, and seemingly to distract attention from his claim’s logical and empirical weaknesses, he disparages – again, without evidence – long term, buy-and-hold investors. Ford quotes him: “any website, any article, any commentator, adviser or fund manager that promotes long-term investment should turn a real-life investor cold – they clearly don’t understand the job. You can tell who they are from the (Warren) Buffett quotes and the references to Benjamin Graham.”

For more than a quarter-century, Leithner & Company has applied to Australian conditions the principles which Buffett and Graham established and practised in the U.S. Our website has thus advocated conservative, long-term investment, and rejected short-term speculation and market timing; for that reason, it applauds Buffett and Graham. So do many of the (more than 100!) analyses I’ve uploaded to Livewire since 2020.

In this one, I’ll cite both Buffett and Graham – and for good measure John Bogle, Charles Ellis, David Hume, Daniel Kahneman, Peter Lynch, Burt Malkiel, Charlie Munger, Carl Sagan, The Wall Street Journal, leading finance writers and academic journals, ASIC and the SEC, Morningstar and other reputable sources.

Do my references imply that I “don’t understand the job”? Or do they – as well as Padley’s lack of evidence – undermine his claim? Does his denigration of the conservative, long-term allocation of capital indicate that he misunderstands the basics of investment and denies the follies of speculation?

He advises: “so do yourself a favour, stop listening to people quoting Warren Buffett and start exploiting prices rather than ignoring them. And by the way – Buffett does time investments. Not that you know it from the fools that quote him.”

Am I a fool – or is any attempt to “time” the market a fool’s errand, and has Padley been fooled by randomness? Unlike him, I don’t urge that you stop listening. Quite the contrary: I suggest that you start reading – and think and judge for yourself.

Your decision is crucial. It’s impossible to know how many speculators attempt to “time” the market. Yet it’s indisputable: attempting to do so is, psychologically and statistically, similar to gambling – and Australians rank among the world’s biggest punters. In any given 12-month period, more than 60% participate in casino games, horse racing, lotteries and sports betting; recently, they’ve wagered more than $240 billion – equivalent to 9% of GDP – per year. Accordingly, they’re among the global champion losers (ca. $36 billion or $1,500 per person per year).

If gambling were classified as a sport, it would easily be the most lucrative in Australia. On that basis, it’s reasonable to assume that Australians are also enthusiastic market timers.

That’s not just a great pity; it’s a huge concern: given its strong likelihood of underperformance and worse, attempting to “time” the market ranks among the costliest financial errors anybody can make (see, for example, “Warren Buffett’s Take on Active Traders: It’s Like Calling One-Night Stands Romance,” Investopedia, 27 September 2025).

As one of the Australian Shareholders Association’s Education Partners, my job is to distinguish investment fact from speculative fiction. Demonstrating the futility – and dangers – of speculation in general and market timing in particular ranks among my most important duties.

Disclaimer

This article is all about valid reasoning and weight of reliable evidence – and nothing else. I’ll therefore start by emphasising that I have zero grounds to believe – and nothing below implies – that Padley is anything other than sincere. 

In sharp contrast, he’s repeatedly stated that mainstream financial institutions, brokers, and advisors perpetuate “lies.”

In Stock Market Lies (9 February 2021), for example, he alleged that when brokers say “Hold” they actually mean “Sell” – and do so to retain lucrative relationships with listed companies. “Timing is everything,” he claimed in “Can You Time the Market?” (12 September 2024), “and anyone telling you otherwise is selling you a lie, hiding in mediocrity (or) advocating laziness …”

I don’t care that Padley casts aspersions. His problem – and my sole concern – is that his assumptions are untenable, his evidence is negligible and opposing logic and evidence are overwhelming. He’s sincere, but his opinion regarding market timing is utterly mistaken.

Why Can So Few Profitably “Tip” Professional Sports?

Attempting to “time” the stock market is akin to trying to predict the outcomes of professional sporting matches: to succeed consistently and profitably over the years, you must outsmart complex systems which contain considerable random variation – as well as large numbers of other people striving to do likewise. 

The result is mostly failure: no matter whether it’s AFL or NRL in Australia, football in Britain, gridiron, etc., in the U.S. or casinos and horses in any country, only a tiny percentage of people predicts highly accurately and gainfully. As a rough rule, no more than ca. 3%-5% of sports gamblers regularly turn a profit; fewer than 1% do so consistently over multiple years.

Although millions of people participate in – and, tragically, some become addicted to – sports gambling, dependably converting prediction into profit is so rare that it’s virtually impossible.

In competitions involving hundreds of thousands of participants, the best AFL tippers typically “predict” no more than 75-80% of matches over a full season; their counterparts in the NRL typically average ca. 60-65%. In both codes, machine-learning models are no more – and perhaps less – accurate. “Being able to tip as well as those at the top of leaderboards is extremely difficult,” concludes David Mark, “and there’s a strong argument that even those (top) tippers are outliers who got lucky” (see “Struggle with AFL footy tips? Even computer algorithms cannot beat randomness,” ABC News, 31 August 2025).

Moreover, reliably predicting winners is less than half the battle: profitable betting also requires beating bookmakers’ odds. (Similarly, and as I’ll detail, consistently “timing” the market requires overcoming transactions costs.)

Sports betting via AI rarely generates long-term profit; that’s primarily because these markets are efficient and bookies’ margins are prohibitive. “Expert” tipsters’ ability to predict matches’ outcomes is better than a coin toss. Most, however, lose money – and the vast majority of punters lose heavily – over time.

Yet the illusion of expertise abounds. “Expert” market timers and footy-tipping pundits are typically confident; but consistent, long-term accuracy in timing either market peaks/troughs or tipping match results is – to put it mildly – exceptional.

As a whole, timers and tippers are grossly overconfident; that is, they arrogantly exaggerate their abilities and ignorantly underrate the role of random chance.

Ben Riley, et al., concluded that “experts picked more correct outcomes than random selection.” Crucially, however, “no difference in monetary outcome was observed for experts compared to random selection” (see “Betting on Australian Rules Football: Can Expert Tipsters Beat Randomness?” Journal of Gambling Studies, vol. 39, 2023). Much the same result applies in Britain, Europe and the U.S.

The number of people who reliably win big over the years from sports betting, like the number of “advantage players” in casinos, is typically estimated at ca. 200-1,000 worldwide. It’s also noteworthy: the miniscule number of genuinely, significantly and consistently profitable sports gamblers operate mostly as secretive syndicates of elite quantitative modelers who mobilise very large quantities of capital – and DON’T, like Padley, offer subscription-based newsletters which require paid memberships from retail speculators of mostly modest means.

What are the odds that anybody can dependably and lucratively “time” the stock market? They’re no higher than profiting from sports betting, casino gambling or the RBA’s interest rate decisions. That is, they’re very low.

What Is Market Timing? Some Extraordinary Assumptions and Assertions

Padley has repeatedly and vociferously claimed that he can successfully “time” the stock market. By “timing” he means adroitly moving between equities and cash – entering the market when conditions look favourable and exiting when they don’t. By these means, he claims, over long terms timing outperforms buying and holding.  

Padley rejects the “traditional mantra” of “buy and hold” and “time in the market.” Instead, he regards market timing as an essential strategy to protect wealth from major downturns and benefit from bottom-of-the-market opportunities. He justifies his decisions to dart into and out of the market upon the claim that he can predict its short-term price movements. He purports to profit by buying immediately before an upswing, and to avoid losses by selling just before a downturn.

Padley will likely reject this characterisation.

He contends that he – and you – can “time” the market by reacting to, rather than predicting, its short-term fluctuations. He’s thus, in effect, a trend-follower and a momentum trader. According to James Marlay (Padley: The rules have changed (for now), 17 February), “fundamentals don’t matter and momentum is the game. If you want to play it, Marcus Padley says you need to start thinking like a computer.” Marlay quotes Padley: “50% of trades are being placed by machines, which are unemotional and act on momentum signals and price action.”

Rather than forecast tops and bottoms, Padley lets a “trend” “declare itself,” and then “rides” it until it reverses. But how does he distinguish it from random fluctuation? He can’t: except at rare extremes, nobody can (for details, see Stop kidding yourself: Nobody can “time the market,” 30 June 2025 and John Allen Paulos, A Mathematician Plays the Stock Market, Basic Books, 2002).

Moreover, and as I detailed in Which Stocks Best Withstand Economic and Political Risks? (10 August), markets’ day to day and month to month variations seldom have any unambiguous cause. These fluctuations are random and thus unpredictable. Hence any attempt to “time” them is trying to predict the unknowable – and any “success” is merely lucky guesswork.

Like other momentum traders and trend followers, Padley’s been fooled by randomness. The inescapable problem with – and fatal flaw of – momentum speculation is that it can’t reliably distinguish trends from random fluctuation. As a result, it generally underperforms and occasionally generates huge losses (for details, see Why value investing crushes momentum speculation, 9 February).

July of this year provided the latest major example. As The Australian Financial Review (10 August) reported, “the S&P 500 ended slightly below its record in July, but beneath the surface momentum suffered one of its most violent episodes on record.”

Lance Roberts (“Is the Momentum Crash Over?” Zero Hedge, 4 August) detailed the carnage. “Morgan Stanley’s momentum index fell 17.4% over four sessions (in July), the worst four-day stretch in the history of the series. The comparable declines were roughly 11% after the dot-com peak and again in the 2022 inflation bear, and 14% after the Covid crash. The technology and media slice of that basket dropped 36% in four days, against a prior record near 20% set in the 1999 to 2001 unwind.”

Roberts continued: “you can see the same thing in instruments you can actually trade. The iShares Momentum ETF fell 18% from its June 22 peak to its July 29 low, and semiconductors, measured by SOXX, surrendered 29% over those same twenty-five sessions. Momentum broke. The equal-weight S&P 500 closed at a record high on July 28. Right in the middle of the wreckage.”

The Wall Street Journal (“The Sudden Unraveling of Wall Street’s Momentum Trade,” 30 August) adds that the S&P 500 Momentum Index, “which tracks stocks in the S&P 500 based on a ‘momentum score,’ is on track for the biggest quarterly underperformance in 25 years. July was the second-worst month for the momentum trade in around 40 years, according to Bank of America estimates; the only month worse was April 2009, in the teeth of the global financial crisis.”

Whether overtly or tacitly, and notwithstanding his denial, only by precisely and reliably predicting short-term price movements can Padley distinguish “momentum” and “trends” from the impenetrable fog of random fluctuation.

Epistemologically, that’s a breathtakingly arrogant assertion. He may as well claim prowess at footy tipping or the roulette wheel. (Epistemology is the branch of philosophy which studies knowledge. It asks fundamental questions such as: how can you credibly know what you purport to know? What makes a belief justifiable? What’s the difference between knowledge and anecdote, etc.) That’s because it necessitates 

1. Near-Perfect Insight and Foresight: unless they acquire “inside information” from companies, central banks, Donald Trump, et al., market-timers mustn’t merely possess superb analytical tools and insights. Theirs mustn’t just be better than everybody else’s; they must be nearly infallible.
2. Low-to-Zero Transaction Costs: timing entails frequent buying and selling, and transactions costs and capital gains taxes erode gains and magnify losses. Hence market-timers must pay low or no brokerage, taxes, etc. Perhaps Padley’s brokers and the ATO have generously agreed to waive these costs?
3. Rapid Execution: market-timers must act very quickly; as we’ll see, if they sit on the sidelines just a handful the market’s strongest days, over the years they’ll greatly underperform buy-and-hold investors.
4. Superhuman Discipline: as he concedes (“you need to start thinking like a computer”), market-timers must don the emotional armour of an automaton. They must remove all fear and greed from their decisions, ignore market panic and euphoria, etc.

Individually, are any of these four conditions plausible? Collectively and for all practical purposes, are they not impossible?

Realistically, how many people exercise near-perfect insight and foresight, AND pay low or no transactions costs, AND execute extremely rapidly AND exercise superhuman discipline? The cognitive assumptions and physical demands of market timing are so unrealistic that they’re insurmountable.

Yet market-timers blithely ignore these difficulties: within any given 12-month interval, they repeatedly dart into and out of markets and between sectors. As Padley told Ford: “we have (“timed” the market) recently by (for instance) selling in the tariff tantrum (went to 100% cash), buying back on the day of the 90-Day Pause, selling again (went to 100% cash) in October 2025 (Big Tech peak) and buying back in on the war induced lows in March 2026.”

As a speculator, Padley adamantly rejects what he calls the finance industry’s “traditional mantra” that “time in the market beats timing the market.”

The point bears emphasis: his assertion is colossally arrogant. Albeit tacitly, he claims ability, intelligence and knowledge which, the orthodoxy has long agreed, nobody can consistently possess. Implicitly, he takes for granted what’s highly doubtful (see in particular Does high IQ make a better investor? 11 November 2020). He’s declaring not just that his foresight is superior: he’s brazenly claiming, in effect, that it’s near-perfect! His rejection of the adage “time in the market beats timing the market,” and his claim that HIS timing of the market outpaces the market, is thus incredible (in both senses of the term).

To substantiate his claims, Padley requires comprehensive and compelling evidence. As we’ll see, to my satisfaction he doesn’t provide it.

Moreover, and as I’ll thoroughly document, he ignores a Mount Everest of logic and evidence which contradicts him. Instead, he distracts attention from his claim’s flaws by impugning others and questioning their motives: “time in the market,” he asserts, is an “an oversimplified excuse” which funds managers employ to justify their fees, advisors use to pacify nervous clients during downturns, etc. (see, for example, Marcus Padley reveals the secret sauce of timing markets, 27 May 2025 and an undated YouTube video entitled Why the Industry Hates Market Timing).

Not unreasonably – indeed, sensibly – he treats cash as an underutilised asset and, in effect, as the “only true defensive stock.” Unfortunately, this begets extreme behaviour: at certain junctures he moves 100% of his portfolio to cash.

Padley’s practically bragged that he’s thereby avoided major events like the COVID-19 crash (“we timed that,” he told Keith Ford). He then waits for the bottom (which, apparently, he can detect) and re-enters the market, sells at the top (which, ostensibly, he can also identify), rinses and repeats.

He makes several “high-conviction macro” decisions per year, and executes them through ETFs such as those tracking the S&P/ASX 200, S&P 500 or Nasdaq 100 indexes. They allow him to dart into and out of markets much more quickly and easily than he could if he “picked” individual stocks.

Padley’s market-timing tactics rest ultimately upon two premises.

Firstly, they require “pragmatic objectivity” and “rigorous effort.” Secondly, if a market-timer pays sufficiently close attention then “market cycles” present “exploitable inflection points” (for details, see There is no substitute for guts, vigilance and hard work: Marcus Padley, 29 June 2020).

Presumably, then, if hitherto you haven’t successfully “timed” the market it’s because you haven’t been sufficiently practical or dispassionate – or else you just haven’t tried hard enough!

Can Padley Do What AI Can’t?

It bears repetition: according to James Marlay, “fundamentals don’t matter and momentum is the game. If you want to play it, Marcus Padley says you need to start thinking like a computer.” 

That begs two vital questions. Can anybody possibly “think like a computer”? Even if it were possible, could anybody thereby “time” the market?

According to The Wall Street Journal (“Is AI Good at Stock-Market Timing? A New Study Casts Doubt,” 26 June), “large-language models (LLMs) may be immune to human emotions like fear and greed, but … researchers recently back-tested a range of LLM-based trading strategies over 20 years and found that they mostly failed to outperform simple buy-and-hold investing. The reason sounds surprisingly human: The bots missed out on gains in bull markets by being too conservative, and then racked up heavy losses by trading too aggressively in bear markets” (for details, see Weixian Waylon Li, Hyeonjun Kim and Mihai Cucuringu, “Can LLM-based Financial Investing Strategies Outperform the Market in Long Run?”).

“The key finding,” one of the researchers, Mihai Cucuringu, a professor of mathematics at the University of California at Los Angeles and the University of Oxford, told WSJ, “was that the apparent advantage of LLM-based strategies largely disappears when you evaluate them over longer periods and across a broader set of stocks.”

Theirs is the latest in a series of such studies. As with sports betting, so with market timing: a just-published meta-analysis (“Artificial intelligence methods for financial market prediction: A systematic review,” Computers and Electrical Engineering, vol. 134, June 2026) “highlights a persistent gap between predictive accuracy and practical trading profitability …”

Some earlier AI-based trading strategies showed promising results, but contained a critical flaw: they included just a handful of securities over short periods. Cucuringu’s team “wanted to test how LLMs performed in different market environments including the 2008 financial crisis, the COVID-19 crash and the bull markets in between. (It) also included delisted stocks to avoid a common issue in back-testing known as survivorship bias, where performance is overstated by including only stocks that are currently active.”

Many AI models work reasonably well over short intervals when the market’s calm. Yet markets don’t long remain placid; indeed, occasionally they fluctuate violently. And thus far at least, AI models can’t consistently predict when stable markets become erratic, or when volatile ones return to calm.

One of WSJ’s sources thus concluded: “I think investors should be sceptical of any trading strategy that uses AI to beat the market.”

AI is obviously advancing rapidly, and Cucuringu acknowledges that in the future models may better navigate changing market conditions. However, his team also tested models of different sizes. They found that larger ones didn’t reliably outperform smaller ones, so there’s no guarantee that bigger ones will perform better.

“It’s a big misconception,” he says, “that better models automatically translate into better trading performance.”

The insoluble problem is that “the (short-term) signal-to-noise ratio in financial data is extremely low.” Whether by a human or an AI model, it’s insuperably difficult to sift wheat (a kernel of relevant information) from chaff (the swirling mass of random and irrelevant data).

“The danger,” WSJ therefore warns, “is that the larger models of the future will simply construct more sophisticated patterns based on noise.”

“As investors increasingly use AI to crunch numbers and summarize earnings calls,” WSJ concludes, “this research shows that they should be wary of relying on it for trading advice.”

AI can clearly trade unimaginably faster than any human being. Algorithms can now routinely execute millions of orders per second, and capture microscopic (fractions of a cent) and extremely short-lived (one one-thousandth of a second) price discrepancies across global exchanges.

In plain English, HFT systems operate hundreds of thousands of times faster than a human being can click a mouse.

Can Padley match that? AI also processes vast quantities unstructured data – such as countless of pages of financial news, transcripts of earnings announcements, social media sentiment, etc. Can any market timer do that? And unlike flesh-and-blood people, AI trades completely unemotionally. Yet even with these huge advantages, over the long term it can’t reliably “time” the market; nor, as a result, does it outperform flesh-and-blood people who “buy-and-hold.”

Given humans’ two huge and rapidly growing weakness relative to AI, can any individual – including Marcus Padley – trade more insightfully than AI, and therefore “time” the market less unsuccessfully than AI?

Prominent and Successful Investors All Agree: They Can’t “Time” the Market

There’s no shortage of successful investors who flatly deny that they – or anybody else – anyone can consistently do what Padley claims he does. Indeed, the more prominent and successful is the investor, the more emphatically he dismisses the possibility that anybody can consistently “time” the market! Moreover, repeatedly entering and exiting the market doesn’t preserve – never mind fructify – wealth: it’s more likely to erode and even destroy it. 

If Padley’s correct then these prominent and successful investors are all mistaken. On the other hand, if these critics are right then he’s wrong.

Critic #1: John Bogle

Bogle founded The Vanguard Group (which presently manages more than $12 trillion globally) upon the proposition that long-term investment beats any short-term, speculative attempt to “time” the market. Nobody can consistently navigate its many peaks and troughs. In his words, “the idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has done it successfully and consistently.”

“It’s extremely rare to hear of anyone winning at it (market timing) over a period of years. Indeed, I’ve never heard of such a genius,” concluded Jack Brennan, one of Vanguard’s retired CEOs.

Critic #2: Warren Buffett

Buffett requires no introduction. Under his leadership, Berkshire Hathaway significantly, consistently and cumulatively dramatically outperformed the S&P 500 Index; specifically, he outpaced it during 40 out of the 60 years between 1965 and 2025. Over these years, Berkshire delivered a compound annual return of roughly 19%. That’s nearly double the Index’s return (ca. 10% per year) over this timeframe.

The lion’s share of Berkshire’s outperformance occurred from 1965 to 1985. Then and afterwards, Buffett routinely beat the Index during periods of high volatility and downturns; even more remarkably, of the 13 calendar years during which the S&P 500 fell, only twice did Berkshire underperform.

Not despite – but because of – his well-documented ability reliably to locate undervalued securities, he’s emphatically rejected any ability to “time” the market – he’s repeatedly and forcefully voiced his rejection. “Nobody knows what the market is going to do tomorrow, next week, next month. But they spend all their time talking about it, because it’s easy to talk about. But (this talk) has no value.”

Moreover, “if (Charlie Munger and I) are right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do” (see “Warren Buffett says he never tries to ‘time’ stocks: ‘I never have an opinion about the market,’” CNBC, 8 May 2018).

Never mind Padley: as I show below, Buffett doesn’t “time” markets; he values them. The difference is chalk and cheese (see also “Warren Buffett Has It Right – Time in the Market Trumps Market Timing,” Forbes, 26 September 2024).

Munger agreed. “It’s in the nature of stock markets,” he said in 2009, “to go way down from time to time. There’s no system to avoid bad markets … (Trying) to time the market … is a seriously dumb thing to do.” Rather than repeatedly enter and exit, he and Buffett recommend that investors should accumulate shares of high-quality businesses at reasonable prices and hold them indefinitely.

Long-term discipline, steady saving and patience – and NOT market timing – builds wealth. “Conservative investing, without expecting miracles,” Munger concluded, “is the way to go.”

Critic #3: Benjamin Graham

The father of value investing was among the best investors before Buffett. From 1936 to 1956, his firm, Graham-Newman Corp., generated an annualised return of ca. 20% per year. It thereby significantly outperformed the broader market, which averaged ca. 12% annually over this timeframe (for details, see “Was Benjamin Graham Skilful or Lucky?” The Wall Street Journal, 13 December 2012 and “Examining Benjamin Graham’s Record: Skill or Luck?” Greenbackd, 9 January 2013).

As Buffett’s mentor and the author of Security Analysis (1934) and The Intelligent Investor (1949), Graham established clear boundaries between investing and speculating. Market-timing clearly isn’t investing. “We are … sure,” he wrote in the latter book, “that if the investor places his emphasis on timing, … he will end up as a speculator and with a speculator’s (meagre) results.” “The farther one gets from Wall Street,” he added, “the more scepticism one will find, we believe, as to the pretensions of stock-market timing.”

“Looking back,” Jason Zweig noted in his Commentary to Chapter 8 of The Intelligent Investor’s 2008 edition, “you can always see exactly when you should have bought and sold your stocks. But don’t let that fool you into thinking you can see, in real time, just when to get in and out. In financial markets, hindsight is forever 20/20, but foresight is legally blind. And thus, for most investors, market timing is a practical and emotional impossibility.”

Several decades later, Graham continued to reject market timing. Towards the end of his life, he continued to castigate it as speculation rather than investing. “If I have noticed anything over these 60 years on Wall Street,” he concluded, “it is that people do not succeed in forecasting what’s going to happen to the stock market.”

Critic #4: Peter Lynch

Lynch is widely regarded as one of the most successful mutual fund managers. As the manager of the Fidelity Magellan Fund from 1977 to 1990, he generated extraordinary strong results: an average annual return of 29%, which was more than double the S&P 500 Index’s over this timeframe. He also outperformed consistently – in 11 of these 13 years. Under his tenure, Magellan’s assets skyrocketed from $18 million to $14 billion and was the world’s best-performing fund.

Lynch warned that investors must withstand the temptation repeatedly to move to the sidelines and return to the game, that is, anticipate the market’s ups and downs. He believed that exiting the market is far more costly than enduring its corrections: “far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

He emphasised the fact that market-timers must accurately “time” not one but two decisions: when to exit the market, and when to re-enter it.

Even if they successfully dodge a downturn, market-timers will miss probably some or most of the upswing. In the real world, they’ll almost invariably mis-time both decisions. Lynch observed that the first error (trying to “time” the market by pulling money out early) magnifies the second one (i.e., causes investors to miss subsequent gains). Consequently, these repeatedly missed opportunities to compound returns routinely outweigh the temporary losses suffered during actual market drops.

Lynch mocked market timers: “the only problem with market timing,” he concluded, “is getting the timing right.”

Critic #5: Burton Malkiel

Malkiel (funds manager, economist at Princeton University and author of books including A Random Walk Down Wall Street, Norton, 1973 and subsequent editions) popularised the crucial fact, which a Mount Everest of academic research since the 1960s (and which I summarise below) has upheld, that stocks’ and markets’ short-term fluctuations follow a random and thus (with the possible exception of minute and fleeting aberrations which only advanced algorithms, powerful computers and state-of-the-art telecommunications can exploit) unpredictable path. 

As a result, virtually any attempt to predict the market’s short-term movements is a “fool’s errand.” Indeed, speculators’ attempt to time their buys and sells constitutes their biggest “unforced error.”

Like Lynch, Malkiel concluded that anyone who tries to “time” the market will find that it’s “virtually impossible” to get “both the exit and re-entry right.”

A “Fool” Corrects Padley’s Misinterpretation of Buffett – by Quoting Buffett!

Padley asserts without evidence: “by the way – Buffett does time investments. Not that you know it from the fools that quote him.” That’s just plain false: Buffett doesn’t “time” investments; he “values” them. He assesses individual companies, strives to establish particular firms’ enduring worth, and thus makes no attempt to guess the fleeting highs and lows of their shares’ prices. 

Value investors purchase businesses, or parts thereof, only when conservative estimates of their value significantly exceed their current market price. Given this “margin of safety,” they seek to retain their investment over the long term.

Rather than guess exactly when the market will move, Buffett and other value investors evaluate what a company’s roughly worth. If well-established and conservatively-financed enterprises which produce essential goods and services become cheap because the overall market plunges, value investors buy – NOT because they’ve “timed” the drop, but because the assets have reached an attractive valuation.

Never mind Padley: Buffett has always – and emphatically – disclaimed any attempt to “time” the market.

“We haven’t the faintest idea what the stock market is (going to) do when it opens on Monday – we never have,” he said at Berkshire Hathaway’s AGM in 2018. “I don’t think we’ve ever made a decision where either one of us has either said or been thinking: ‘We should buy or sell based on what the market is going to do,” he added, referring to Berkshire’s vice-chairman, Charlie Munger (see “Buffett on market timing: ‘We haven’t the faintest idea,’” Yahoo Finance, 1 May 2022).

In “You Can Time the Market, Just Not All the Time” (14 September 2018), The Wall Street Journal’s “Intelligent Investor” columnist, Jason Zweig, clarified his stance: “the respected investor Howard Marks is coming out with a new book (Mastering the Market Cycle: Getting the Odds on Your Side, HarperBusiness, 2018) whose title might inspire many readers to scour it for evidence that short-term market timing can work. They will look in vain.”

Zweig continues: “you should scale back or crank up the level of risk you take in the markets, says Marks – but only when signs of euphoria or despair become extreme. The more often you do change your stance, the less likely you are to be relying on valid indicators.”

My position and Zweig’s are very similar. In Stop kidding yourself: Nobody can “time the market” (30 June 2025) I wrote: “the short-term, CPI-adjusted total returns of markets (such as the S&P 500 Index, All Ordinaries Index, etc.) and stocks (such as BHP, etc.) are almost perfectly random – and therefore, in effect, completely unpredictable. As a result, and except under very rare conditions, which I specify, virtually nobody can consistently ‘time’ the market.”

Figure 1 of that article showed that, “except at the extremes, the S&P 500’s 12-month returns over the past 150 years have been almost perfectly normally distributed. The distribution does, however, have ‘fat tails.’” Accordingly, “except on the rare occasions when its 12-month gains or losses are extremely high, short-term returns are random and thus unpredictable.”

Marks reckons that markets move in multi-year cycles. Accordingly, says Zweig, “investors who react to what they perceive as short-term signals are likely, most of the time, to be basing their moves on little more than noise.” Zweig concludes that the intelligent investor is a realist whose steadiness counterweights the erratic crowd: he “buys from pessimists when things are historically cheap and sells to optimists when things are blindingly expensive.”

Investors successfully “value” purchases and sales. Speculators repeatedly attempt – usually in vain – to “time” them.

What Does Academic Research Overwhelmingly Conclude about Market Timing?

Padley rejects the contention that stocks’ and markets’ short-term variations are random. He thereby ignores a massive literature which now numbers hundreds of peer-reviewed articles in reputable journals. Since the 1960s it’s been unequivocal: nobody can consistently “time” the market. Specifically, timing fails to outperform a passive buy-and-hold strategy on a risk-adjusted basis. 

Eugene Fama, who’s now Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, was foundational. He demonstrated that in the short term stocks’ prices follow a random walk; in principle, short-term market timing is therefore impossible (see in particular “The Behavior of Stock-Market Prices,” The Journal of Business, vol. 38, 1965).

Robert Henriksson of UC-Berkeley erected a superstructure upon Fama’s base. He was the first to demonstrate that in practice market timing isn’t feasible. He evaluated “the market-timing ability of 116 open-end mutual funds for the period 1968-80,” and his “results do not support the hypothesis” that mutual fund managers are able to “time” the market (“Market Timing and Mutual Fund Performance: An Empirical Investigation,” The Journal of Business, vol. 57, 1984).

To my knowledge, Fama’s and Henriksson’s conclusions haven’t been seriously challenged – never mind overturned. They derive primarily from financial markets’ efficiency.

If a market is efficient, then the prices of its stocks and the level of the market at any given time represent the best estimates of true underlying value. The “efficient market hypothesis” (EMH) doesn’t contend that stocks and markets always equal their fundamental values: it contends that they’re unbiased; hence it’s impossible to tell which stocks and when markets are undervalued and which are overvalued. Stocks’ prices and markets’ levels are “efficient” in the sense that 

1. prices usually, and reasonably accurately, reflect existing information;
2. they typically adjust reasonably quickly and accurately to new information;
3. genuinely new information emerges randomly and therefore is unpredictable;
4. accordingly, so too are short-term fluctuations of assets’ prices.

The current consensus of finance academics today remains essentially what it’s been since the 1960s: given markets’ efficiency, it’s virtually impossible consistently to “time” stocks’ or markets’ fluctuations over the next 12-18 months.

The Massive Cost of Missing the Upside

Extensive research over the decades has repeatedly found that the market’s strongest gains are highly concentrated in just a few days each year. Market timers who exit the market to avoid downturns often miss these days. Missing just a handful of the best-performing days over a decade doesn’t just drastically reduce long-term investment returns: it greatly underperforms simple “buy-and-hold” investment.

Hartford Funds (“Timing the Market Is Impossible,” March 2026) quantifies this crucial point with recent data. If you invested $10,000 in the S&P 500 at the beginning of 1996 and held it continuously until the end of 2025, the market value of your investment, including dividends, would have grown to $192,167. That’s a compound annual growth rate (CAGR) of 11.1% per year.

That’s also 7,827 business days in the U.S. Moreover, by jumping into and out of the market you missed the Index’s 10 best days – that’s merely 0.13% of the total number of business days! – then your nest-egg grew to just $85,490. That’s less than one-half (44%) as much as the buy-and-hold investor’s, and a CAGR of 8.0% per year.

It gets even worse. If you missed the S&P 500’s 20 best days (just 0.26% of the total number of business days) your grubstake shrunk to $49,551. That’s just one-quarter (26%) as much as the buy-and-hold investor’s, and a CAGR of 5.9% per year. Finally, if you missed the Index’s 30 best days (0.38% of the total) it grew to just $31,123.

That’s merely one-fifth (16%) of the buy-and-hold investor’s gain, a CAGR of just 4.1% per year – and less than one-half of the buy-and-hold investor’s.

The more frequent is the market-timer’s attempt to “time” the market, the greater is the number of days he sits on the sidelines. The greater is this number, in turn, the higher is the probability that it includes the Index’s best-performing days – and the higher is the likelihood that the marker-timer will underperform.

On this basis, among others, a buy-and-hold approach (“time in the market”) handily outperforms attempts to “time” the market. Yet Padley remains undeterred and unrepentant: “the assumption that you don’t trade but that you buy-and-hold for the long term is terribly wrong.”

Transactions Costs and Fees

Market timing requires frequent (by the standards of buy-and-hold investors) buying and selling. Academics have repeatedly demonstrated that the associated transaction fees, bid-ask spreads and capital gains taxes act as heavy drags upon returns. On this basis, too, it’s extraordinarily difficult for market-timers to outpace a simple buy-and-hold strategy.

Behavioural Biases

A relatively new field, behavioural finance, ascertains how psychological biases affect financial decisions. One of the most pervasive of these biases is the tendency towards overconfidence about one’s beliefs and abilities and over-optimism about the future. One of the field’s founders, Daniel Kahneman, demonstrated that speculators are particularly prone to these biases. 

As a result, as “explanations” of their results they tend to overstate their skill and underplay or deny chance. Market-timers overvalue their own knowledge, underrate risk and embellish their ability to control events. To random fluctuation they also attribute “reasons” which they supposedly identify (for details, see Which stocks best navigate economic and political risks? 10 August).

Behavioural finance also demonstrates that emotions – namely fear and greed – heavily influence speculators. For these and other reasons – namely the basic human inability to foresee the future – market-timers typically mis-time their trades. Towards what in retrospect are peaks they’re exuberant and overconfident, and are thus more likely to buy than sell. Equally, towards bottoms they panic, become despondent and are more apt to sell than buy (for details, see Why “value” ETFs underperform – and most ETFs are poison, 9 June).

Although some academic studies and industry professionals (particularly specialised quantitative hedge funds) acknowledge that fleeting “anomalies” (that is, inefficiencies) may exist, behavioural finance academics conclude that, on the whole, any ability to “time” the market is, net of costs and fees, practically impossible.

As an example, consider Jim Simons. He wasn’t an investor; he was, however, one of a VERY small breed: a formidably intelligent, exceptionally skilled, well-resourced and successful speculator. He didn’t claim – as Padley does – that he could “time” the market as a whole. Instead, armed with advanced algorithms and state of the art computing and telecoms infrastructure which largely removed behavioural biases from his operations, he identified and profited from minuscule and fleeting inefficiencies in market niches before anybody else could.

Arguably, Simons was the most successful speculator of recent decades. Yet, and as he acknowledged, barely more than 50% of his trades made money. Moreover, his returns were a consequence of nosebleed levels of leverage – and NOT of trading acumen (for details, see How Warren Buffett has trounced “the world’s greatest hedge fund manager,” 11 August 2025).

What does Padley know that Simons didn’t? What can Padley do that Simons couldn’t?

Recent Research

According to The Wall Street Journal (“A New Reason Investors Shouldn’t Try to Time the Stock Market,” 23 January 2021), “researchers have amassed plenty of persuasive evidence in recent years showing that market timing – or moving in and out of stocks based on where you think the market is headed – often leads to lower returns (than buy and hold investing)” (see in particular Ilia Dichev, “What Are Stock Investors’ Actual Historical Returns? Evidence from Dollar-Weighted Returns” (The American Economic Review, vol. 97, no. 1, March 2007). 

“But if that isn’t enough to convince you,” WSJ continues, “perhaps this will: a new study finds that active trading also significantly increases the volatility of a portfolio. That is, market timers actually assume much more risk to get those lower returns, compared with investors who simply buy and hold investments” (see Ilia Dichev and Xin Zheng, “The Volatility of Stock Investor Returns,” Journal of Financial Markets, vol. 70, September 2024).

“The link between market timing and increased risk appears to be a global phenomenon. Dichev and Zheng find a similar pattern in a variety of international markets, including Canada, Germany, Japan and the UK. Their findings reveal the full cost of active trading. Such investors are chasing safe winners, but they’re actually getting risky losers.”

Dichev and Zheng find, in effect, that market timers generally accept more risk yet typically receive lower returns.

Why do so many people try to “time” the market despite the strong evidence that it’s counterproductive? Many people are simply unaware of the mountain of evidence. Others – “particularly men – are convinced (that this evidence doesn’t) apply to them. (Still) others simply enjoy playing the market; trying to pick winners is more fun than sticking with long-term investments, probably for the same reason that many people enjoy blackjack and slot machines.” The problem, of course, is that casinos create far more losers than winners – and much more misery than fun.

WSJ concludes: “research from Dr Dichev and others suggests that … we should be encouraging investors to (buy and hold) and stay focused on the long-term.”

What Say Major Regulators about Market Timing?

The Australian Securities & Investments Commission (ASIC) certainly doesn’t endorse – instead, it rejects – market timing. Investing between the flags: A practical guide to investing (undated) states: “because prices of investments can rise and fall, it can be hard to pick the right moment to buy or sell. Even professional fund managers sometimes have trouble knowing the right time to enter or leave the market.” Among “unwise investing (sic) behaviours,” which are “outside the flags,” it includes: “you … just want to make the most money in the shortest amount of time.”

Among “investment risks,” ASIC lists “market timing risk.” It concludes with the caution: “the timing of your investment decisions (exposes) you to the risk of lower returns or loss of capital.”

The U.S. Securities and Exchange Commission (SEC) agrees. Its investor.gov website is blunt: “Don’t Try to Time the Market.” “No one is smart enough to time the market’s ups and downs,” concluded Arthur Levitt, one of its former chairmen.

What Conclude Journalists, Authors and Researchers?

Those which eschew speculation overwhelmingly agree. “If we haven’t said it enough, we’ll say it again: Market timing is dangerous,” concluded The Barron’s Guide to Making Investment Decisions (Penguin, 1998). “The odds that you will achieve long-term success by actively trading or timing the market round to zero,” added Morgan Housel, author and columnist in The Wall Street Journal. 

“There are two kinds of investors, be they large or small: those who don’t know where the market is headed, and those who don’t know that they don’t know,” concluded William Bernstein. “There is absolutely no evidence that anyone can time the market.” On that basis, there are those who know that nobody can “time” the market, and those who haven’t realised that nobody can.

Peter Bernstein concurred: “market timing recommendations have an impressive track record of being harmful to an investor’s financial health.”

“Just as there are old pilot and bold pilots,” noted Charles Ellis, “but no old, bold pilots, there are no investors who have achieved recurring successes in market timing. The market does just as well, on average, when the (market timer) is out of the market as it does when he or she is in it. Therefore, the (market timer) loses money relative to a simple buy-and-hold strategy by being out of the market part of the time. Wise investors don’t even consider trying to outguess or outmanoeuvre the market …” (see Winning the Losers Game: Timeless Strategies for Successful Investing, McGraw-Hill, 8^th ed., 2021).

“Market timing is a wicked idea. Don’t try it – ever,” Ellis concluded. “The market timer’s Hall of Fame is an empty room,” Jane Bryant Quinn acidly but wittily added.

Major research houses agree. “I can’t point to any mutual fund anywhere in the world that’s produced a superior long-term record using market timing as its main investment criteria,” said Don Phillips, MD of Morningstar. “We have found that the fund managers who tend to perform the best over time are the ones who spend the least amount of time debating which way the market is heading.”

John Rekenthaler, its VP of Research, was caustic: “market timers are circus clowns minus the funny suits. Even when they dodge the bear market, they inevitably miss the ensuing bull. Their track record is terrible.” Pat Dorsey, its Director of Fund Analysis, was curt: “market timing is bunk.”

Padley’s Evidence

Padley points to the track records of his Marcus Today newsletter and MT20 portfolio as “proof” that market timing – or, at least, his approach to it – “works.” In 3 pieces of investing wisdom that need to be chucked out (and 1 that should stay) (16 June), Keith Ford quoted him: “we have been teaching how to time the market since 1998, doing (it) hypothetically in the newsletter since 2018 (20.99% pa return since inception) and in real life with a fund called the MT20 fund since February 2025 … That fund is designed for Australian retirees, … (and its) return since February 2025 is currently 35.9% after all costs.”

That’s it? I first gasped – and then laughed – when I realised that these two claims constitute the “evidence” underpinning his ability to “time” markets. Each is deeply flawed – and thus highly questionable.

Firstly, and to put it mildly, Padley’s hypothetical results are hardly equivalent to actual results. As Malkiel observed in A Random Walk Down Wall Street (W.W. Norton, 2007), “considerable questions surround the long-run dependability of … (hypothetical) effects. Many could be the result of ‘data snooping,’ letting the computer search through data sets of past securities prices in the hope of finding some relationships. With the widespread availability of computers and easily accessible stock-market data, it is not surprising that some statistically (as opposed to substantively) significant correlations have been found …”

Moreover, “even if there is a dependable predictable relationship (in the real world) it may not be exploitable. For example, the transaction costs involved in trying to capitalise on the January Effect are sufficiently large that the predictable pattern is not (financially) meaningful” (see also Sell in May, go away and lose money, 19 May 2025).

It bears repetition: during the 20 years from 1936 to 1956, Benjamin Graham outperformed. And during the 60 years from 1965 to 2025, and particularly the 20-year stretch from 1965 to 1985, Warren Buffett significantly outperformed. So did Peter Lynch over his 13 years at the helm of the Magellan Fund.

Yet Padley denigrates anybody who lauds Graham and Buffett – and in defence of market timing, claims just 18 months of outperformance!

Malkiel recounts the experiences of Richard Roll, an academic economist at the California Institute of Technology – and also the co-founder in 1985 of Roll and Ross Asset Management Corp. Roll had “personally tried to invest money, my clients’ money and my own, in every single (market) anomaly and predictive device … And yet I have yet to make (five cents) on any of these supposed market inefficiencies …”

Which anomaly and predictive device has Padley uncovered which has escaped the attention of Roll and Simons – and their many current imitators?

Roll concluded: “if there’s nothing that investors can exploit in a systematic way, time in and time out, then it’s very hard to say that information is not being properly incorporated into stock prices … Real money investment strategies don’t produce the results that (advocates of these ‘opportunities’ and of market inefficiency) say they should.”

Reviewing research and funds’ managers’ experience, Malkiel concludes: “(it’s) clear that techniques that work on paper do not necessarily work when investing real money …”

This result is crucial – and it generalises. A market timer’s actual results almost invariably fall short – and often well short – of simulated (“back-tested”) returns. This is for several reasons; for my purposes, one (“overfitting”) is particularly important. Simulators usually tweak a strategy’s rules repeatedly until it performs brilliantly on past data. As a result, instead of finding a true market pattern, the test merely “memorises” historical noise, making it useless when facing “live” market conditions.

“I have never seen a bad back-test,” said one specialist in a blog post. “25 years in this work. Not one (bad back-test). Every back-test I’ve been shown has good returns and a Sharpe that looks investable. Always. That’s the point of a back-test. You adjust the parameters until it tells you what you need it to tell you” (see also “Backtesting vs Live Trading: 4 Reasons Why Your Results Don’t Match,” EBC Financial Group, 9 April and “The critical pitfalls of backtesting trading strategies: a complete guide,” StarQube, 23 October 2025).

What of Padley’s claim that on the basis of a single year’s result – namely MT20’s return since February 2025 (“currently 35.9% after all costs”) – his approach to market timing “works”? It’s common sense: just as one swallow does not a spring make, one year’s results do not outperformance demonstrate. Statistically compelling evidence that a manager’s results are attributable to genuine skill rather than random luck requires no less than 10-15 years of outperformance.

Buffett, Graham and Lynch – all of whom disclaimed their ability to “time” the market – passed this very demanding test. To make a credible case, Padley must also pass it; that, in turn, requires another 9-14 years of outperformance.

Over periods of 1-3 years, a manager can relatively easily outpace a benchmark purely by sheer luck – for example, by heavily overweighting one or more sectors which subsequently rally. Like clockwork at the beginning of the calendar and financial year, gullible journalists laud “best-performing” funds; these journos and funds managers have likely been fooled by randomness (for details, see Investors, beware: It’s THAT time of year again! 10 January 2021).

Achieving significant outperformance over such short timeframes is effectively impossible. Moreover, “timing” the market necessarily entails higher fees and transaction costs. In order to generate a statistically significant and positive “alpha” (return above the benchmark), every year a manager must overcome this structural hurdle.

Over time, these costs compound, and thus help to make prolonged outperformance very rare.

Data from S&P SPIVA (“S&P Indices versus Active”) scorecards over the past quarter-century have consistently demonstrated that it’ll be immensely difficult for Padley to surmount the 10-15-year outperformance hurdle (for details, see Why “value” ETFs underperform – and most ETFs are poison, 9 June). Over intervals of 10 and more years, virtually all active managers underperform their benchmarks.

That’s not least because outperformance dissipates quickly: only a minute percentage – which is often below what random chance would predict – of a given year’s top performers are able to maintain that status over periods of 5-10 years. Virtually none do so over periods longer than 10 years.

A manager who claims to outperform must demonstrate his skill across different economic environments such as bull and bear markets, rising or falling interest rate environments, and recessions and rebounds.

Hulbert’s Analysis of Market-Timing Newsletters

Hence the crucial importance of Hulbert Financial Digest’s study “on how well (74 of the biggest by numbers of subscribers) market timing newsletters did getting into and out of equities between early 2000 and January 2016 … The start date was chosen because it was the top of the Internet bubble, right before its bursting. The ensuing 16 years also included the 2007-2009 bear market, the worst since the Great Depression.” 

“This period,” HFD observes, “therefore was tailor-made to showcase the value of market timing.”

HFD analysed “the performances of hypothetical portfolios that could alternate between just two investments: U.S. equities (as represented by the Wilshire 5000 Total Return Index) and cash (as represented by 90-day Treasury bills). These returns therefore ignore how good, or bad, a job a newsletter may have done picking individual securities. Transactions were allowed just once a day, at the close. Neither commissions nor taxes were debited.”

“In addition to reporting the annualized gain of these hypothetical timing-only portfolios,” HFD’s analysis also shows the maximum peak-to-trough loss of each strategy. This is a crucial statistic, since one of the benefits claimed for market timing is a reduction in the bear market risk.”

HFD’s meta-data are publicly available; Figure 1 summarises them. On average over these years, market-timing newsletters generated an annualised percentage return (APR) of just 2.8% per year. In contrast, the Index generated an average APR of 6.1%. That’s more than twice as great. Moreover, the average newsletter’s maximum peak-to-trough loss was a whopping -43.6%.

Figure 1: Annualised Percentage Return, Average Market-Timing Newsletter versus S&P 500 Index, January 2000-December 2016

Just five of these 74 newsletters – 6.8% of the total – outperformed the S&P 500. That’s lower than S&P SPIVA’s average of all active funds; it’s also less than would be expected as a result of mere chance.

These market-timing newsletters didn’t just underperform: they systematically and significantly underperformed. What does Padley’s know that these didn’t?

HFD demonstrates that newsletters which purport to “time” the market generally fail to outpace buy-and-hold; moreover, as a group they show no evidence of possessing special – never mind near-perfect – foresight regarding the market’s direction. Key takeaways from HFD’s data include:

• Lack of consistency: although individual market-timers occasionally experience “hot streaks” (akin to, say, five “heads” from five tosses of a coin) during which they “successfully call” market turns, historical tracking shows that this “consistency” doesn’t persist; a timer who succeeds in one period rarely maintains that edge over full market cycles.
• Chasing momentum: rather than accurately forecast, market-timing newsletters typically “retrodict” – that is, recommend that subscribers lift their exposure to equities after the market’s already risen, and trim their exposure after it’s already fallen. Newsletters thereby belatedly herd their subscribers into recent “trends” and “momentum” (which are typically random fluctuations).
• Volatile underperformance: market-timers’ portfolios often whipsaw, i.e., they move heavily or entirely into cash during rallies or stay fully exposed during sharp downturns. This erratic behaviour begets extreme volatility-adjusted underperformance relative to benchmarks.

“Timing” the Market Is a “Loser’s Game”

The outcome of a “loser’s game” is determined by the mistakes and foolishness of its losers rather than the successes and brilliance of its winners. Simon Ramo, an American engineer, businessman and author, popularised the concept; Charles Ellis applied it to investing in Winning the Losers Game: Timeless Strategies for Successful Investing (McGraw-Hill, 8^th ed., 2021). 

Its key insight is that trying to be brilliant backfires; instead, victory goes to those who commit the fewest unforced errors.

Ellis demonstrates that trying to beat the market through speculation (such as frequent trading, market timing, etc.) is a loser’s game. High fees, taxes and emotional blunders – and, as I’ve shown, random fluctuation – sink traders and timers. Morningstar’s research in the U.S. and experiments in Australia “point to the same conclusion …that investors tend to give away a meaningful share of their returns not through one dramatic mistake, but through the accumulated costs of reacting …” (see “The market timing traps that destroy long-term wealth,” The Australian Financial Review, 2 September).

Winning at investing is a matter of avoiding self-inflicted wounds; the best way to do that is to buy and hold quality assets.

Conclusion: Sagan’s Standard and Hume’s Miracles versus Padley’s Assertion

The aphorism of the astronomer and science communicator, Carl Sagan (“extraordinary claims require extraordinary evidence,” which is often called the “Sagan Standard”), is a cornerstone of systematic and critical thinking.

Padley’s claim is certainly extraordinary. Logically and empirically, however, his evidence is very weak – and that which contradicts him is overwhelmingly strong. His assertion thus fails the Sagan Standard.

Although Sagan brought the phrase into today’s mainstream, the underlying principle derives from the Scottish Enlightenment of the 18^th century. If Padley’s claim that he can “time” the market is true, it’d constitute a secular miracle.

What did Benjamin Graham conclude about investment miracles? In The Intelligent Investor he observed: “bright, energetic people … have promised to perform miracles with ‘other people’s money’ since time immemorial. They have usually been able to do it for a while – or at least to appear to have done it – and they have inevitably brought losses to their public in the end.”

It bears repetition: if Padley’s correct then John Bogle, Warren Buffett, et al., as well as the corpus of academic finance since the 1960s, etc., have long been mistaken and ASIC, the U.S. SEC, etc., are misguided.

The Scottish philosopher, David Hume (1711–1776), in his essay On Miracles (1748), contended that “no testimony is sufficient to establish a miracle, unless the testimony be of such a kind, that its falsehood would be more miraculous, than the fact, which it endeavours to establish.”

In other words, crediting a miraculous claim is sensible only if the alternatives are even more improbable than the purported miracle.

According to Hume, when assessing a claim like Padley’s you must (1) weigh two competing probabilities: (A) he’s right versus (B) the alternatives (Bogle, Buffett, et al., the academic consensus since the 1960s, Australian and American corporate regulators, etc.) are correct – and (2) reject the one that’s less credible.

That’s why, every day of the week and twice on Sundays, I reject Option A and accept Option B.

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