| > The denizens of the investor forum would be wrong; it isn't trying to time the market. This strategy is simply valuing the stocks. trying to pick the stocks that are least overvalued is great and everyone should be doing it all the time. (assuming you are investing in individual stocks and not index funds) the problem comes when you say "everything is overvalued so i'll sit in cash until the market is less overvalued" and yes that's timing the market. > The problem with the plan is that holding piles of cash is a game for losers; you need the money to be in some sort of asset - it matters not what - to avoid the printers of the central banks. There is a real chance that stock prices never come down as much as everything else goes up. yes, you've identified the central problem with timing the market, this is precisely why it's a bad idea in general. As others are saying: if you accept the efficient market hypothesis then your guesses are inherently no better than random chance, unless you somehow have unique insight that nobody else in the market has. Otherwise if you've successfully identified a trading strategy that worked, it would be exploited until there was no longer any value there, and the market returns to "no better than random chance". (there's the old joke: an economist and his friend are walking down the sidewalk. The friend spots a bill laying on the ground and says "look, a hundred dollar bill!" and bends down to pick it up. But the economist keeps walking, saying "of course it can't be, if it was then somebody would have picked it up already." It's a meme but in a macro sense it's true, there are small pockets of alpha that can be exploited on a small scale but in the macro sense the market is as efficient as it can be and everybody else is just as aware as you that "the market seems overvalued right now" too.) Therefore the best strategy is to dollar-cost-average across some span of time and accept that you may have missed a percent here or there but that the market is generally going up by more than you missed - and that you also may have timed it poorly and cost yourself a percent or two as well. |
Valuing an asset and then not buying when it is expensive is a completely different activity. It involves no prediction on how long it will be before the price corrects relative to value.