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Conclusion

If you can time markets, you can make immense returns, and it is this potential payoff that makes all investors into market timers. Some investors explicitly try to time markets by using technical and fundamental indicators, whereas others integrate their market views into their asset allocation decisions, shifting more money into stocks when they are bullish on stocks. Looking at the evidence, though, there are no market-timing indicators that deliver consistent and solid returns. In fact, there is little proof that the experts at market timing—market strategists, mutual funds and investment newsletters, for example—succeed at the endeavor.

Notwithstanding this depressing evidence, investors will continue to time markets. If you choose to do so, you should pick a market-timing strategy that is consistent with your time horizon, evaluate the evidence on its success carefully, and try to combine it with an effective stock-selection strategy.


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