“Far more money has been lost by investors trying to anticipate corrections, than has been lost in the corrections themselves.”
—Peter Lynch, widely regarded as the greatest fund manager in U.S. history

Sir Isaac Newton had just finished formulating his laws of motion when he tried his hand at a far simpler problem: making money in the financial markets. Newton was convinced he could beat the crowd and, considering his amazing achievements in physics, was justified in his assumption. 

The South Sea Company was founded in 1711, primarily to manage British debt. Newton was an early investor and profited handsomely from his investment, but he believed it would end badly, so he liquidated his shares. As the weeks went on, however, the price of the South Sea Company continued to climb. Unable to bear watching others get richer while he sat in cash, Newton bought back in, only to see the stock collapse in 1720. 

When the dust settled, the most celebrated scientist of his era had lost the modern equivalent of several million dollars. Newton was able to predict eclipses to the minute, yet he could not predict the behavior of financial markets nor control his own emotions. He is reported to have sighed, “I can calculate the motions of the heavenly bodies but not the madness of men.”

Trying to time the market is a temptation as old as investing itself. The allure is obvious: if you could reliably predict when to sell before a big drop and when to buy back before the next surge, your returns would trounce a simple buy-and-hold approach. Who wouldn’t want to get the benefit of stock market returns without the downside risk?

In theory, perfect market timing is the ultimate investment strategy. In practice, however, it’s extraordinarily difficult–if not impossible–to achieve over an investment career.

Most who try it, and most of us have tried it at some point, end up being worse off than if they had stayed invested.

Here’s why trying to outguess the market is a bad idea.

Reason 1: You must be right…

“The function of economic forecasting is to make astrology look respectable.” —Ezra Solomo

One common catalyst for attempted market timing is the news cycle. Every day, investors are bombarded with headlines—warnings of recession, political crises, Fed policy shifts, world events, and other dire stories. It’s very easy to let these news items sway our investment decisions. If “experts” are predicting a recession or a market crash, shouldn’t we take defensive action? 

Investing based on news headlines or forecasts is usually a recipe for disappointment. Time and again, predictions fail to materialize as expected, and those who acted on them end up regretting it.

In 2011, amidst a U.S. credit rating downgrade and European debt crisis, many commentators warned of a “double-dip recession.” It never happened, and stocks rose in 2012. 

In 2015–2016, there were dire predictions that plunging oil prices and China’s slowdown would trigger a U.S. recession. Then Trump won the election in 2016, and the predictions were for a bear market in stocks. Again, it didn’t happen, and the market powered to new highs in 2017. 

Trade war fears in 2018 also never materialized; the market was higher. 

The inverted yield curve in 2019, a supposed recession indicator, was wrong. No recession in 2019. The recession that did happen in 2020 was for the pandemic. Despite the self-induced recession, stocks still finished the year higher in 2020.

In late 2022, the financial press was obsessed with the idea that a U.S. recession was imminent in 2023. Inflation had spiked above 6%, the Federal Reserve was aggressively hiking interest rates, and many pundits argued a downturn was inevitable. In August 2022, economist Steve Hanke predicted “we’re going to have one whopper of a recession in 2023.” He wasn’t the only one; in October 2022 Bloomberg Economics modelers announced there was a 100% probability of a recession within 12 months.

Oops.

There was no recession. In fact, the US economy grew, unemployment stayed low, inflation subsided, and the stock market went on to hit a new all-time high by the end of 2023.

In July 2024, BCA Research’s Peter Berezin argued that the prevailing optimism was unfounded and “the consensus soft-landing narrative is wrong.” He predicted the U.S. would fall into recession by late 2024 or early 2025, and that this downturn would send the S&P 500 plunging 32% in 2025 to around 3,750 points. 

Meanwhile, the S&P 500 hit 50 new all-time highs in 2024 and finished the year around 6,000.

In early 2025, a new risk emerged on the horizon—aggressive U.S. trade policies. President Donald Trump announced sweeping new tariffs on April 2, 2025, catching markets by surprise. Fears quickly spread that escalating trade wars would choke global growth and finally trigger the long-awaited recession. The S&P 500 plunged roughly 10% in 48 hours, including a 6.65% single-day drop on April 3–one of its worst days since the 2020 pandemic crash. Headlines blared that a “stock market crash” was underway.

Just as quickly as the market fell, it rebounded. Within a week, the White House moved to pause and roll back some of the tariff measures, sparking a furious rally. By May 13, just six weeks after the panic began, the S&P 500 had fully erased its losses and even turned positive for the year.

Reason 2: …twice.

“We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen.” —Warren Buffett, 1994 Letter to Shareholders

As it turns out, being right once is difficult; but to be a successful market timer, you need to be right not just once, but twice: both on when to sell and when to buy back in. 

Even if you correctly predict an impending downturn and move to cash, you then face the equally hard task of determining the perfect moment to re-enter the market. And that perfect time to buy is always when things look their worst; so, by definition, the best time to buy always feels like the worst time to buy.

If you sell too early, you miss out on further gains while sitting in cash. If you sell too late, you’ve already suffered losses. And if you misjudge the bottom and buy back too late, you miss the best part of the recovery. Markets often turn up abruptly when pessimism is highest, which means those celebrating a well-timed exit can miss the swift rebound. 

Reason 3: The best days come in the worst of times.

“You make most of your money in a bear market, you just don’t realize it at the time.” —Shelby Cullom Davis

Speaking of rebounds, most of the markets’ biggest moves happen during bear markets. In fact, about 78% of the markets’ best days have occurred during bear markets. This means that those best days often happen when investors least expect positive news.

And you don’t want to miss them.

An extensive study by Ned Davis Research looked at S&P 500 returns from 1995–2024. An investor who missed just the 10 best days out of 30 years, their overall returns would be cut in half. Missing the 30 best days reduced overall returns by an astonishing 83%.

There were roughly 7,500 trading days from 1995 thru 2024. Missing just 30 days or 0.4% wiped out almost your entire gains for that period. 

A $10,000 investment in the S&P 500 grew to over $220,000 when fully invested the entire time. However, missing the 10 best days shrank the ending value to around $102,750. Missing the 20 best days left only about $60,000, and missing the 30 top days resulted in roughly $38,000—a staggering 83% less wealth than the buy-and-hold investor.

Any attempt to engage in market timing, particularly around heightened volatility, puts you at risk of missing one or more of these critical rebound days. By the time the outlook feels safe, and you buy again, the market has already recovered. The lesson: time in the market is critical, because missing even a few key days can make a massive difference.

Reason 4: There is no evidence of a single successful market timer.

It may not be fair to say that market timing is impossible; we can’t prove something doesn’t exist by only observing that we’ve never seen it. Maybe someone can pull it off, but there hasn’t been any evidence so far. 

To date, we have not heard of a single investor or fund manager that has consistently achieved better performance by market timing. (If you can find one, please let us know.) And we’re not alone. 

Vanguard founder and investing legend Jack Bogle said that in his 50 years in the business, “I don’t know anybody who has [timed the market] successfully and consistently. I don’t even know anybody who knows anybody who has.” 

Reason 5: There are plenty of examples of unsuccessful market timers.

The successful market timer is as rare as the black swan, but the unsuccessful ones are as plentiful as white ones.

Decades ago, analyst Mark Hulbert tracked the performance of dozens of investment newsletters, many of which engaged in active market timing. The results were sobering. In one often-cited analysis, covering the 10-year period from 1988 to 1997, not even one of the 25 market-timing newsletters beat the returns of the broad stock market. Their average annual return was about 11.1%, while the S&P 500 gained roughly 18.1% per year over that decade. The best market timer in Hulbert’s universe returned 13.7% annually versus 15.1% for the S&P 500–before trading costs.¹

Newsletters are one thing, but what about professional money managers? 

John Hussman was a Ph.D. economist and mutual fund manager who became famous for bearish market calls. His Hussman Strategic Growth Fund made stellar gains during the 2000–2002 dot-com crash, largely by hedging to avoid the market plunge. He repeated this defensive success in 2008, losing only 9% when the S&P 500 fell 37%.²

However, Hussman then kept his fund highly defensive throughout the long bull market that followed. From 2009 onward, he continuously anticipated a market downfall that didn’t arrive. As a result, the fund badly lagged. By early 2014, the five-year annualized return of Hussman’s flagship fund was negative. His fund lost –3.5% versus +22.2% per year for the S&P 500 over the same 5-year period.

The siren song of market timing impacts millions of investors, and the data shows just how costly it can be. Morningstar’s annual “Mind the Gap” study of investor returns found that over the 10 years through 2023, the average fund returned 7.4% annually. However, the average investor in those funds earned just 6.3% per year. 

This gap of 1.1 percentage points per year, which adds up to about one-sixth of the total return, represents the cost of poorly timed purchases and sales. Investors tended to pour money into funds after they had already run up (buying high) and panic-sell during declines (selling low), missing out on the subsequent recoveries.

The evidence is overwhelming: Sir Isaac Newton can’t time the market, Ph.D. economists can’t time the market, expert fund managers can’t time the market, and investors can’t do it. Many of the world’s greatest investors don’t even attempt it.

We would be wise to follow their lead.

Reason 6: Transaction costs.

Finally, there is one more reason to consider before trying to time the market: trading costs. Every time you sell a stock or fund at a profit in a taxable account, you incur capital gains taxes. Frequent trading disrupts the process of compounding by siphoning off money to Wall Street brokers and the IRS.

Even in tax-sheltered accounts, moving in and out of positions racks up transaction costs like bid-ask spreads and commissions. Studies have repeatedly found that active timing systems that back test well before costs tend to underperform after considering trading expenses and taxes, even with the benefit of hindsight. When you consider the uncertainty as to whether those systems will work in the future, the odds are even less favorable. The more you trade, the more these costs steadily leak from long-term returns. 

By contrast, a patient buy-and-hold investor defers taxes and minimizes trading costs, allowing compound growth to work more efficiently. This means a timing strategy must outperform by a wide margin just to match the after-tax, after-cost returns of a simple buy-and-hold strategy.

Reason 7: There’s a better alternative.

“I never have an opinion about the market because it wouldn’t be any good and it might interfere with the opinions we have that are good.” —Warren Buffett

“Time in the market beats timing the market” is a cliché for a reason—because it’s true. When you feel anxiety from scary headlines or economic uncertainty, recall the many false alarms of the past. There are always things to worry about. 

Sometimes, those worries come to fruition–or even worse than feared. 

We’ve had two World Wars, threats of nuclear attack, the Vietnam war, wage controls, price controls, high taxes, low taxes, two oil shocks, a one-day drop in the Dow of 508 points, a global pandemic, communism, socialism, Democrats, Republicans, assassination attempts (and successes), bad managers, inefficient governments, deficits, huge government debt, protests, recessions, housing collapses, credit crisis, and more. 

Yet, despite all the terrible things that have happened over the last 200+ years, the stock market has been the greatest wealth-building machine in human history.

Resist the urge to time the market. Instead, base your strategy on long-term principles—buy quality assets, diversify, and stay invested through thick and thin. The more time you own a portion of quality companies, the more your odds of success go up.

1 “Bob Brinker’s Market Timing - CXO Advisory.” 2025. Cxoadvisory.com. 2025.  https://www.cxoadvisory.com/individual-gurus/bob-brinker/

2 “The Curious Case of John Hussman: Understanding the Biases in Your Process.” awealthofcommonsense.com. 2014.
https://awealthofcommonsense.com/2014/02/curious-case-john-hussman-understanding-biases-process/

This article, written by Nathan Winklepleck, a member of our Investment Policy Committee, was featured in the Summer 2025 edition of the Rising Dividend Report.

Read more articles from this issue here.


This has been provided for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Information obtained from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of publication and are subject to change without notice. Past performance is not indicative of future results. 

An index is an unmanaged portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Investors cannot invest directly in an index. An index does not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown.