Confessions of a market timer

In February, I speculated that the market was over-valued, yet I was going to stay invested in stocks anyway, because "this is exactly the roller-coaster I signed up for". However, I have been feeling a little guilty since I made this rather pompous pronouncement. I wasn't lying: I did believe I had good reason to think the market was over-valued, but I didn't move a dime out of the funds I owned at the time, because I truly believed my reasoning was as likely to be wrong as right. As I predicted, the markets did drop shortly afterward (though, having declared my support for the Efficient Market Hypothesis, I must admit this was a fluke).

However, my self-congratulatory article left out one important detail. True, I didn't sell my existing funds, but I did stop buying quite so many stocks. Until January my monthly contributions went 100% into stocks, but a few weeks before posting that article, I switched new contributions into a fund that was only half stocks and half bonds. When the bubble had fully deflated on Aug 8, I moved everything back into 100% stocks, which is where I wanted to be in the first place.

I reasoned that selling the stocks I owned might be misguided, but there was no reason for me to keep paying too much for more stocks. Most important, though, this move permitted me to feel like I was doing something about the situation. I'm sure the primary benefit of my decision was psychological. That's not exactly something to be proud of.

So here I stand, bemoaning my human frailty for caving in to the temptation to time the market. I'll just have to console myself with the fact that this maneuver saved me fully 10% of the money I invested between January and July.

The infuriating footnote here is that the request I put in on Monday evening wasn't processed until close of business on Tuesday. As late as 3pm I was still pretty happy with myself, but then the market went and gained over 2.7% in the final two hours of trading, making stocks over 3.7% more expensive than they were when I put in my buy order. That amounts to one whopper of a trading commission!