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IMO, this is a much more comprehensive article on the same topic: https://www.aqr.com/-/media/AQR/Documents/Insights/White-Papers/Market-Timing-Sin-a-Little.pdf

IMO, this is a much more comprehensive article on the same topic: https://www.aqr.com/-/media/AQR/Documents/Insights/White-Papers/Market-Timing-Sin-a-Little.pdf https://www.aqr.com/-/media/AQR/Documents/Insights/White-Pap... For unsophisticated investors, timing the market tends to keep money on the sidelines during growth periods, eroding long-term returns. This is part of why it's considered an investing sin - "time in the market beats timing the market." Sophisticated systematic investors can probably get good results with certain momentum-based market timing strategies, but most of us aren't sophisticated systematic investors.

veqq 3y ago
To go into further detail about systemic investing: There have been experiments like the turtle traders ^ 1 who applied "trend following", used today by many CTAs on exotic markets. For this, an investor taught some people his strategy/rules, gave them his money and they've shined for 40 years. The fundamental strategy still works today (updated). Fundamentally, it's a method to ride momentum in different ways (e.g. crossectional.) Hedge fund managers like Rzepczynski, Cem Karsan, Alan Beer... Richard Brennan is the most insightful of them who shares his methods freely. N.b. trend following doesn't work well in stock markets, but flourishes in Mexican rate swaps, orange juice futures, London sugar... combined in ensembles. Traditional value investors, building on the Intelligent Investor, have always done well over samples above a few years. (N.b. Warren Buffet hasn't been a value investor for a long time, because he has too much to manage. He was strongly inspired by Fisher's Common Stocks and Uncommon Profits, which gave us the concept of "growth stocks".) (N.b. 2, value investing ETFs are mostly terrible, fundamentally not investing in value stocks due to their structures.) Carisle's Acquierer's Multiple is the most recent development in systemic value investing (he also runs an ETF or two along these lines). "Magic formula investing" even holds up too! In the mining space, you also get discretionary (not purely systematic) investors like Rick Rule openly discussing their methodologies, successful for decades and decades. Here’s an interesting paper ^ 2 (exec summary pages 5-6). Note that 70% of underperformance is due to investors withdrawing funds during times of market crisis. Fund fees also drive the majority of underperformance. N.b. most wealth managers can't legally follow such strategies because of the prudent person rule. They are legally forced to underperform typical indices - and the majority of research has focused on them, distorting the data pool. [1] https://www.investopedia.com/articles/trading/08/turtle-trading.asp https://www.investopedia.com/articles/trading/08/turtle-trad... [2] https://wealthwatchadvisors.com/wp-content/uploads/2020/03/QAIB_PremiumEdition2020_WWA.pdf https://wealthwatchadvisors.com/wp-content/uploads/2020/03/Q...
- lend000 3y ago
  The fact that you're being downvoted for factual contributions kind of explains why it's possible to beat the markets. Most people refuse to believe it. No public strategies are going to beat the market by a huge amount, and having the discipline to execute them manually isn't easy, but it has been clearly shown to be possible.
  - zer0tonin 3y ago
    The dogma that it's impossible to beat the market is frankly weird at this point. If the markets were truly efficient, randomly picking stocks would beat SPX ~50% of the time. Since markets are not super efficient, basic exposure to performance factors (small cap, value, momentum...) puts you at a fairly high likelyhood of beating SPX.
    - Aunche 3y ago
      It doesn't count as beating the market unless if you're doing so due to skill. It's not particularly unusual to beat the market and come out of a casino positive. On the other hand, bragging about how good you are at slots, is what will get you "weird dogmatism."
      - zer0tonin 3y ago
        Dang, I guess I will go tell my quant friends their knowledge of probabilities doesn't count actually, they should try having "skill".
        the_sleaze9 3y ago
        Exactly. That's why I only play the `Skill Games` at the back of the gas station with my savings.
    - deleted 3y ago
      [deleted]
    - 3y ago
porknubbins 3y ago
This has been my experience too, I missed out more by being sidlined during good times than I saved. Personally as an engineering mindset person I am good at identifying likely failure modes of companies (i.e. reality) but rarely anticipate how much things will go up during good times which is more of a social phenomenon (hype).
- henry2023 3y ago
  It seems like identifying failure modes could work if you could model the likelihood of the company going bankrupt in a certain amount of time because even if the enterprise is working on failure mode, public markets have been popularity contests for a really long time.
  - porknubbins 3y ago
    Sure, Michael Burry is a famous example of it working. But as someone not that good or dedicated its easier to profit on the up side.
- tomatocracy 3y ago
  Understanding potential failure modes for companies is a much more important part of credit investing (this is what I do for a living these days, though I've done equity investing as well). Unfortunately a very large part of the credit universe is very difficult to access if you're a non-professional investor though.

veqq 3y ago

To go into further detail about systemic investing: There have been experiments like the turtle traders ^ 1 who applied "trend following", used today by many CTAs on exotic markets. For this, an investor taught some people his strategy/rules, gave them his money and they've shined for 40 years. The fundamental strategy still works today (updated). Fundamentally, it's a method to ride momentum in different ways (e.g. crossectional.) Hedge fund managers like Rzepczynski, Cem Karsan, Alan Beer... Richard Brennan is the most insightful of them who shares his methods freely. N.b. trend following doesn't work well in stock markets, but flourishes in Mexican rate swaps, orange juice futures, London sugar... combined in ensembles. Traditional value investors, building on the Intelligent Investor, have always done well over samples above a few years. (N.b. Warren Buffet hasn't been a value investor for a long time, because he has too much to manage. He was strongly inspired by Fisher's Common Stocks and Uncommon Profits, which gave us the concept of "growth stocks".) (N.b. 2, value investing ETFs are mostly terrible, fundamentally not investing in value stocks due to their structures.) Carisle's Acquierer's Multiple is the most recent development in systemic value investing (he also runs an ETF or two along these lines). "Magic formula investing" even holds up too! In the mining space, you also get discretionary (not purely systematic) investors like Rick Rule openly discussing their methodologies, successful for decades and decades. Here’s an interesting paper ^ 2 (exec summary pages 5-6). Note that 70% of underperformance is due to investors withdrawing funds during times of market crisis. Fund fees also drive the majority of underperformance. N.b. most wealth managers can't legally follow such strategies because of the prudent person rule. They are legally forced to underperform typical indices - and the majority of research has focused on them, distorting the data pool. [1] https://www.investopedia.com/articles/trading/08/turtle-trading.asp https://www.investopedia.com/articles/trading/08/turtle-trad... [2] https://wealthwatchadvisors.com/wp-content/uploads/2020/03/QAIB_PremiumEdition2020_WWA.pdf https://wealthwatchadvisors.com/wp-content/uploads/2020/03/Q...

lend000 3y ago
The fact that you're being downvoted for factual contributions kind of explains why it's possible to beat the markets. Most people refuse to believe it. No public strategies are going to beat the market by a huge amount, and having the discipline to execute them manually isn't easy, but it has been clearly shown to be possible.
- zer0tonin 3y ago
  The dogma that it's impossible to beat the market is frankly weird at this point. If the markets were truly efficient, randomly picking stocks would beat SPX ~50% of the time. Since markets are not super efficient, basic exposure to performance factors (small cap, value, momentum...) puts you at a fairly high likelyhood of beating SPX.
  - Aunche 3y ago
    It doesn't count as beating the market unless if you're doing so due to skill. It's not particularly unusual to beat the market and come out of a casino positive. On the other hand, bragging about how good you are at slots, is what will get you "weird dogmatism."
    - zer0tonin 3y ago
      Dang, I guess I will go tell my quant friends their knowledge of probabilities doesn't count actually, they should try having "skill".
      - the_sleaze9 3y ago
        Exactly. That's why I only play the `Skill Games` at the back of the gas station with my savings.
  - deleted 3y ago
    [deleted]
  - 3y ago

porknubbins 3y ago

This has been my experience too, I missed out more by being sidlined during good times than I saved. Personally as an engineering mindset person I am good at identifying likely failure modes of companies (i.e. reality) but rarely anticipate how much things will go up during good times which is more of a social phenomenon (hype).

henry2023 3y ago
It seems like identifying failure modes could work if you could model the likelihood of the company going bankrupt in a certain amount of time because even if the enterprise is working on failure mode, public markets have been popularity contests for a really long time.
- porknubbins 3y ago
  Sure, Michael Burry is a famous example of it working. But as someone not that good or dedicated its easier to profit on the up side.
tomatocracy 3y ago
Understanding potential failure modes for companies is a much more important part of credit investing (this is what I do for a living these days, though I've done equity investing as well). Unfortunately a very large part of the credit universe is very difficult to access if you're a non-professional investor though.