Timing Isn’t Everything – July 2019

Over the course of a summer, it’s not unusual for the stock market to be a topic of conversation at barbecues or other social gatherings. A neighbor or relative might be asking about which investments are especially good at the moment. The lure of getting in at the right time or avoiding the next downturn may tempt even disciplined, long-term investors to take action. The reality of successfully timing markets, however, isn’t nearly as straightforward as it sounds.


Attempting to buy individual stocks or make tactical asset allocation changes at exactly the “right” time presents investors with formidable challenges. First and foremost, markets are fiercely competitive and highly adept at processing information. During 2018, a daily average of $462.8 billion in equity trading took place around the world.1 The combined effect of all this buying and selling is that available information, from economic data to investor preferences and so on, is quickly incorporated into security market prices. Trying to time the market based on an article from this morning’s newspaper or a segment from financial television? It’s likely that information is already reflected in prices by the time you can react to it.

Dimensional Fund Advisors once again studied the performance of actively managed mutual funds over twenty years and found that even professional investors have difficulty beating the market: over the last 20 years, 77% of equity funds and 92% of fixed income funds failed to survive and outperform their benchmarks after costs.2

Further complicating matters, for investors to have a shot at successfully timing the market, they must make the correct call to buy or sell stocks not just once, but twice. Professor Robert Merton, a Nobel laureate, said it well in a recent interview with Dimensional:

“Timing markets is the dream of everybody. Suppose I could verify that I’m a .700 hitter in calling market turns. That’s pretty good; you’d hire me right away. But to be a good market timer, you’ve got to do it twice. What if the chances of me getting it right twice were independent each time? They’re not. But if they were, that’s 0.7 times 0.7. That’s less than 50-50. So, successful market timing is horribly difficult to do.”


The S&P 500 Index has logged an astonishing ten-year performance. Should this result suggest reducing normal investment policy allocations for U.S. stocks? Exhibit 1 suggests that new market highs have not been harbingers of poor outcomes longer term. Historic data shows positive average annualized returns over one, three, and five years following new market highs, not only in the U. S. but in most developed markets internationally where that occurs.

In US dollars. Past performance is no guarantee of future results. New market highs are defined as months ending with the market above all previous levels for the sample period. Annualized compound returns are computed for the relevant time periods subsequent to new market highs and averaged across all new market high observations. There were 1,115 observation months in the sample. January 1990–present: S&P 500 Total Returns Index. S&P data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. January 1926–December 1989; S&P 500 Total Return Index, Stocks, Bonds, Bills and Inflation Yearbook™, Ibbotson Associates, Chicago. For illustrative purposes only. Index is not available for direct investment; therefore, its performance does not reflect the expenses associated with the management of an actual portfolio. There is always a risk that an investor may lose money.


Outguessing markets is far more difficult and riskier than popularly believed. While successful timing is theoretically possible, research finds little evidence that even professionals can do it reliably. The good news is that smart investors don’t need to practice clever timing for investing success. Capital markets have rewarded long-term disciplined and informed investors who maintained intelligent equity exposures despite periods of price volatility. By positioning and focusing on what you can control (like appropriate asset allocation, broad diversification, and managing expenses, turnover, and taxes), through professional wealth management you may take advantage of what capital markets can provide and experience more peace of mind.

  • 1In US dollars. Source: Dimensional Fund Advisors, using data from Bloomberg LP. Includes primary and secondary exchange trading volume globally for equities. ETFs and funds are excluded. Daily averages were computed by calculating the trading volume of each stock daily as the closing price multiplied by shares traded that day. All such trading volume is summed up and divided by 252 as an approximate number of annual trading days.
  • 2Mutual Fund Landscape 2019, Dimensional Fund Advisors Publication (2019).