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The Pros Use Market Timing

Fund timing has also been grossly misunderstood by the investing public and the financial media. Most of the financial journalists and mutual fund managers will have you believe that fund timing doesn't work. For many casual amateur timers that generalization may hold true.

The fact is that today only a dwindling number of academics still cling to the belief that markets are too "efficient" to allow for profitable fund timing and fund selection.

However, if market timing were easy everyone would be doing it successfully. Many mutual fund managers who frown on fund timing are simply hypocritical. They will often restrict your ability to buy and sell their fund's shares by charging big early redemption fees because trading drives up their costs.

Those fees and restrictions on the shares YOU own are imposed on you while the fund managers themselves are turning over their shares in their funds they own often more than 100% a year! They just don't want THEIR costs to rise regardless of YOUR personal financial interests.

In other words the experts that expect you to buy-and-hold their shares in an effort to keep their costs contained are fund timing their own shares in the funds YOU own! You're simply not going to get good advice about fund timing from those within the financial services industry who depend on keeping YOU in line to hold their costs down.

Furthermore, the most successful mutual fund managers use a combination of techniques, including derivative products, to effectively move their funds to cash in anticipation of bear markets. In fact the two most successful fund managers in the U.S. in the past decade both used "hedge fund" timing techniques to avoid the long 2000-2003 bear market. Yet those same two winning fund managers do their very best to restrict you from taking advantage of the same market timing techniques they use to so profitably manage their own portfolios.

While all professional mutual fund managers are aware of the potential benefit of market timing their portfolios, especially in an attempt to avoid bear markets, many simply have too much money under management to allow them to move large amounts of money around with the flexibility and dexterity needed to effectively market time their portfolios. These mega-fund managers are prevented by the unwieldy size of their stock holdings from taking advantage of hedging and other market timing techniques to limit their losses during sour markets.

Therefore, these large and influential fund managers all the more inclined to prevent or at least discourage you from market timing your own shares in their funds. Thus the "stigma" gets inappropriately attached to term "market timing."

Fortunately for us as investors, the TSP is a government run plan. The Federal Retirement Thrift Investment Board values us as its customers and places a premium on protecting our rights to our freedom of choice to switch and transfer between the various TSP funds as we wish without imposing significant and discouraging "redemption fees" upon us.

 

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