When should you abandon a sinking financial ship? Not merely because it’s being tossed by stormy seas.
I was reminded of this at a recent gathering of financial advisors. One participant noted that five years ago he would have never disclosed he was a market timer. Such a revelation would have been greeted with disdain. Today, he said, the reverse is true. Market timing—often called “tactical asset allocation” to give it a little more panache—is back in vogue. Today it is the advisors who subscribe to “buy and hold” that are keeping silent.
Why the big turnaround in just five years? Market timing (trying to sell at the top or buy at the bottom of a market) is 180 degrees from buy and hold (buying a number of asset classes and maintaining them). One might understand such a rapid shift in non-professionals untrained in the area of finance, but most advisors are trained professionals.
To understand what happened, we need to look no further than the market crash of 2008-2009 and the mechanics of the brain.