Recently, I watched the video below with professor Kenneth French (he’s one of the smartest finance minds in the world!). In the short video, he compares successfully timing the market to the idea of sports betting. To be successful in betting on a game, you cannot simply know which team is going to win or lose. You need to be able to beat the spread to successfully gamble (and make any money!). In short, your opinion of the game has to be materially different than the aggregate wisdom of all the other sports fans who are betting on the game.
With investing, it’s not enough to simply guess if an event is going to happen (ie recession or no recession). To be a successful market timer, you have to have an opinion that’s materially different than all the other market participants whose opinions are already priced into the stock market!
I think this sports analogy is spot on – keep this lesson in mind as we head into the fall (with uncertainty about Coronavirus, election season, etc.). It’s a great video if you have 3.5 minutes to spare to hear from a great mind!