***Wizards of Wall Street: Market Timing and the Allure of Prognostication

Since the dawn of civilization, man has tried to predict the future because knowledge of the future could influence decisions that would greatly affect the welfare of individuals and society. If the farmer knew exactly what the weather was going to be like, he could adjust his planting schedule accordingly. If the merchant understood the social, economic, and political trends, he could tailor his inventory and sales cycle to accommodate the situation.

Throughout history, there have been people who, through luck or educated guesses, have accurately “predicted” the future. Some of these same prognosticators have benefited from their predictions and come out ahead, leading others to wonder whether a secret body of knowledge exists that holds the key to riches.

One of the most popular contemporary versions of the prognosticator is the practitioner of “market timing.” Market timing is a strategy in which the investor tries to identify the best times to be in the market and when to get out. Relying heavily on forecasts and market analysis, market timing is often used by brokers, financial analysts, and mutual fund portfolio managers to realize the greatest rewards for their clients.

Investors who practice market timing embrace their craft with a certain missionary zeal. These modern day seers come armed with charts, facts, and figures, and are wont to denigrate the tendency of many investors to follow their emotions.

The advocates of market timing are the ultimate purveyors of the ideology that being in the right place at the right time is the key to riches. Their counterpart, the “buy and hold” crowd, contend that timing is an illusion; it cannot be done with any accuracy and evidence to the contrary either proves the rule or is plain dumb luck, no matter how much analysis and quantitative rigmarole is involved.

Far be it for me to say who’s right. Like most people, I leave my investments in the hands of someone who devotes his every working day to financial minutiae, the likes of which I neither understand nor have any interest in. However, the debate over market timing versus more long-term, passive investment strategies is interesting for the divergent sensibilities it illustrates.

Those who hitch their wagon exclusively to the market timing strategy are part of a long line of rigorous, quantitative thinkers. They believe the world is logical and operates by certain unassailable rules, and that discovering those rules is the secret to living right and living well. Then there are those who doubt that a set of rules and managed variables can be harnessed for any sort of predictable result.

Divination and the secrets of success converge to form a kind of mystical realm that is forbidding or dubious to some. Timing, as representative of these elements, has real traction in the marketplace and is a concrete investment strategy to which many subscribe. At any rate, it is a potent symbol of the elusiveness of consensus in even the most quantitative matters. It is also a symbol of the distinctly American fixation on hidden knowledge as path to the big score.