Tolerating market timing is not enough. This should be encouraged.

That’s not to say that market timing isn’t bad. Market timing is good. Market timing is price discipline. Price discipline is the magic that makes markets work. We should always encourage market timing by all investors.

Benefits of Market Timing

Market timing is the key to achieving long-term success as a stock investor, so we would all be better off if all internet sites could exchange market timing information. Buy-and-Holders run away from our Get Rich Quick impulses because they compromise us. We all have an innate desire to get something for free. So we don’t push market timing too hard. We do not approve of the tactics used by buy-and-hold holders to suppress discussion. But we are sympathetic to what they are trying to do.

Things change when prices collapse. I think once you know first-hand how painful an experience it is to go through a buy-and-hold crisis, your tolerance for buy-and-hold behavior will decrease. So buyers and holders will have to relent a bit. I doubt they will be willing to surrender completely. My guess is that they will go from stubbornly refusing to discuss the benefits of market timing to grudgingly acknowledging that there may be unusual situations where engaging in a little market timing might not be such a terrible idea. The late John Bogle previewed how this tactic could be used in a commentary leading up to the remarket as part of The Great Safe Withdrawal Rate Debate.

It won’t fly.

I am all for compromise. That part is gold. The problem is that market timing is rarely good under unusual circumstances. Market timing is what makes the stock investing world tick. This is the key to long-term success. Stocks are such an amazing asset class that it’s hard to imagine how stock investors who take advantage of market timing could underperform over the long term. And irrational enthusiasm is such a destructive force that it’s hard to imagine how a stock investor who refuses to engage in market timing can avoid massive losses at some point in his or her investing life.

Either market timing is nothing (if the market is efficient) or it is everything (if valuations affect long-term returns). This is the only possibility. We need to figure out what it is (you know what I think) and get down to the business of developing a complete model of how stock investing works, rooted in its fundamental principles.

After the purchase, the holder may or may not have been right. They are half right and half wrong. If market timing is a necessity for investors who want to keep their risk profile constant over time, it is tempting to undersell the benefits of market timing for fear of offending those who argue otherwise when all the research has not yet been done. It’s irresponsible. We’re not doing ourselves any favors. For our Buy-and-Hold friends, take the bandage off very slowly. If Shiller’s research makes sense, we should leave the buy-and-hold approach behind and move toward the first truly research-based model for understanding how stock investing works as quickly as possible.

Market timing gives you a huge advantage. But it doesn’t have immediate appeal. Choosing to time the market means rejecting irrational enthusiasm, which means rejecting get-rich-quick. It doesn’t happen naturally. It takes effort.

Becoming an Effective Market Timer

To be an effective market timer, you need to hear examples of this every day. Bull markets have existed for as long as stock investing has existed. The human weaknesses that lead us to believe that this may be the first time in history where market timing is not 100% necessary will not go away just because some internet sites are opened up for the honest posting of research. For those who give advice in this field, there will always be a temptation to pretend that irrational passion is real, and for those seeking such advice to fall prey to fraud.

Do you know how difficult it is to maintain a healthy diet? That’s the kind of battle you’ll fight when you set aside buy-and-hold and pledge to follow a research-based strategy. If the best an investment advisor can do is hesitantly admit that market timing isn’t so bad after all, you won’t last long. Market timing is good. Market timing is reasonable. Market timing is prudent. Timing the market is smart. We need to be reminded of that every day to have any realistic hope that the message will actually take off.

Rob’s bio is here.