How Right Do You Have to Be?

How right do you have to be to avoid losing money during an equity market downturn, and obtain a net after-tax return superior to the return you would have earned if you had simply held your portfolio through the market turmoil trusting that the market will eventually recover?

The answer is that you would have to make two correct market timing decisions in a row – one correct decision to sell just before the market drops, and another correct decision to buy just before the market begins to recover.  So far as we know, no one has ever been able to do that consistently.  Furthermore, if you hold equity positions with deferred capital gains, you must pay tax on those gains upfront when you sell.  This substantially increases the risks associated with market timing because you have to pay tax costs as the entry fee to the market timing game.

Read the white paper here:

market timing, investments, risk

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