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Far From Random: Using Investor Behavior and Trend Analysis to Forecast Market Movement by Richard Lehman

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Chapter 5. Market Timing

The great lie foisted on investors is that it's always a good time to buy stocks.[26]

Steven M. Sears, Barron's

The concept of market timing suffers a decidedly negative reputation in the investment world sustained by Wall Street, news media, academia, government regulatory bodies, and most major industry constituents. The overriding perception is that it is not possible to time the market successfully and consistently, and it is therefore senseless, if not downright irresponsible, to try. The moderate viewpoint holds that one will lose money or reduce overall investment performance in the attempt; in the extreme, there are those who believe it is actually bad for the markets. On the notion of losing money, I heartily agree. Trying to time the market using fundamental factors—or worse, hunch—is destined to be a losing proposition. But on the idea that market timing is bad or that there might not be valid tools available for making such decisions, I couldn't disagree more. Universally held opinions, especially those borne of ignorance, have been proven wrong throughout history.

Despite the frequent appearance of the term in the media and in investment literature, different interpretations of market timing abound. An Internet search will turn up as many different definitions as there are sources. Some specifically point to market timing as the activity that made headlines in the mutual fund industry several years ago when fund companies allowed some investors ...

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