Newsletter #4: Timing Isn’t a Sin – Why Market Timing Can Be Rational

Key Insight:

Contrary to the widely preached mantra that 'you can't time the market,' thoughtful, risk-aware timing strategies can outperform passive investing—especially when avoiding extreme drawdowns.

The Timing Taboo

Wall Street often warns: 'Don’t try to time the market.' The rationale is that most investors fail to pick tops and bottoms consistently. But this blanket advice ignores one truth: market timing isn’t about perfection—it’s about avoiding the most dangerous moments and sidestepping euphoria and despair.

Timing Works in Extremes

Extreme overvaluation and panic-driven crashes offer fertile ground for intelligent timing. For example, exiting before the 2008 crash or lightening up in early 2000 would’ve dramatically outperformed a buy-and-hold strategy. Timing doesn’t require predicting tops; it just requires recognizing unsustainable conditions.

Real Timing Example:

• The S&P 500 fell over 50% from Oct 2007 to Mar 2009.
• A timing model that exited once valuations exceeded 25x earnings avoided most of the drawdown.
• From 2000–2010, a simple moving average crossover (200-day MA) strategy beat buy-and-hold with less volatility.

Even the Pros Time It

Endowments, pensions, and hedge funds constantly adjust exposures. Tactical asset allocation, trend-following, and volatility-based signals are all forms of timing. The myth that no one can do it well is often contradicted by the actions of the most sophisticated investors.

Timing is Risk Management

You don’t need a crystal ball to time the market. You just need discipline, rules, and a focus on risk. Avoiding a 30% loss can be more powerful than capturing a 10% gain. Smart timing is less about maximizing upside and more about protecting capital.