In the wrong hands, market timing falls somewhere between occultism, wishful thinking and fortunetelling. In the right hands, it stimulates thinking about cycles of market spikes and plunges.
One of the more delightful characteristics of timers, indeed, is that they are tinkerers, dreamers and death on spreadsheets: Men and women who just can't stand the notion that the broad market might move as randomly as a 2-month-old kitten, and therefore stay up late at night trying to see coherence where others see chaos.
For a broad and thoughtful view of market-timing systems, check out the World Wide Web site of Paul Merriman & Associates, a Seattle-based money manager (http://www.paulmerriman.com) that is consistently ranked among the best at this dark art by the independent Hulbert Financial Digest. Merriman believes that asset allocation is actually more important than timing to wring risk out of investing. He also suggests that investors follow as many as 16 different stock and bond systems at a time, committing only 6% of their capital in any one buy or sell signal at a shot.
It sounds dizzying, but Merriman swears that each system generates only two to three signals a year, meaning you would make only 30 to 50 trades of no-load mutual funds that mimic the Standard & Poor's 500 index per year. That makes an investor's commitment to following the signals the most critical factor.
"There's no shortage of mechanical systems--only a shortage of discipline," he says.