The trouble with market timing

12 May 2020 | Investment principles


In his book The Little Book of Common Sense Investing, Vanguard founder Jack Bogle included a very apt quote from Warren Buffet on the matter of market timing. And that is, "for investors as a whole, returns decrease as motion increases".

In recent times, this seems to be more pertinent than ever.

ASIC last week published a report stating that in the early stages of the COVID-19 crisis when markets were at their most volatile, there was a rapid increase in the frequency of trading by retail investors and a decrease in the time they held onto securities.

In other words, ASIC noticed a concerning surge in the number of retail investors engaging in short term trading strategies and "unsuccessfully attempting to time price trends".

Many of these retail investors were also completely new to the market, and many were buying and selling complex, high risk investment products.

While the age old philosophy of buy low, sell high seems a simple enough concept, it is definitely easier said than done.

According to the report, on more than two-thirds of the days on which retail investors were net buyers, the price of the shares they bought declined the next day.

Conversely, for more than half of the days on which retail investors were net sellers, their share prices increased over the next day.

Even for the brightest of professional traders, timing the market in such volatility is tough.

For an inexperienced retail investor – and ASIC says there has been a clear spike with new accounts being opened roughly 3.4 times higher during their research period (from February 24 to April 3) while the typical holding period has fallen during significantly and ASIC is clearly warning investors that the pursuit of quick "wins" is more likely to lead to losses.

Do or don't... but always with discipline

When markets are in turmoil, emotions often are too. Our innate need to be in control can sometimes lead us to making impulsive decisions that don't benefit a long term goal. Taking control doesn't necessarily mean taking action (any action!).

In volatile markets, market timing is a dangerous temptation. Vanguard's own and empirical research conducted both in academia and the financial industry has repeatedly shown that the average professional investor persistently fails to time the market successfully.

But that's not to say investors should remain complacent when markets are volatile. Being disciplined also means sticking to your investment plan and rebalancing where necessary (although not on a daily basis).

Control your costs

It's also worth keeping in mind that every trade comes at a literal cost. The more frequently you transact, the more fees you must pay and ultimately the more profit that gets eroded.

Perhaps we can also view costs from an emotional perspective. The stress of monitoring hourly share price swings and overnight market moves surely takes a toll. Not to mention regret over unexpected losses or missed windfalls, hence the saying that opportunities that are clear in retrospect are rarely visible in prospect.


The best chance at investment success doesn't usually stem from impulsively picking one individual stock over another – and then selling it two or three days later. That is behaviour better characterised as gambling rather than investing.

Rather investing success is more likely to flow from setting goals, taking a portfolio approach and maintaining a long-term perspective and focusing on the factors you can control, such as your asset allocation and costs.

And like Jack Bogle once said, "time is your friend, impulse is your enemy". Don't let a turbulent market blow you off course.


Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.
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Robin Bowerman, Head of Corporate Affairs at Vanguard Australia, shares investment and personal finance insights gained from over two decades in the finance industry as writer, commentator and editor.

Robin Bowerman

Robin Bowerman