Publications
The Myth of Perfect Timing in Investing
Every investor has fantasized about making the perfect trade—buying low and selling high within a very short time frame.
Every investor has fantasized about making the perfect trade—buying low and selling high within a very short time frame. The lure of market timing, a seemingly magical skill of predicting market movements, resulting in maximum profits with precision. In the professional world, this is known as perfect market timing, a feature that seems to require a magic crystal ball: the ability to see into the future, make those perfect buys and sells, and reap the rewards.
While it’s tempting to imagine such mastery, the reality is often more elusive. Occasionally, luck may smile, and short-term successes can be achieved. However, such gains are usually the result of fortunate coincidences, known as “lucky punches”, rather than the result of consistently mastering market timing.
Market timing is not as simple as guessing whether the stock market will rise or fall next. It is much more complex. The challenge lies in the multitude of factors that influence capital markets, from economic data to geopolitical events, from irrational herd behaviour of investors to unpredictable “Black Swan” events, to name just a few. This tangled web of interacting variables makes it nearly impossible to get the timing consistently right, even for the most advanced artificial intelligence.
A closer look at the performance of the broader U.S. stock market index, the S&P 500, reveals only two corrections with drawdowns greater than 20% between 2015 and 2024(market close to close): a 26.7% plunge from February to March 2020 fueled by COVID-19 panic, and a 21.8% drop from January to June 2022, driven by aggressive central bank rate hikes in response to surging inflation. These rare and abrupt selloffs underscore just how difficult—if not impossible—it is to accurately time exits and re-entries in the market in a consistent manner over the long run.
Market timing also goes hand in hand with another habit: panic selling. This happens when investors rush to liquidate their assets in response to sudden, severe events—such as the outbreak of an armed conflict or a global pandemic - that massively weigh on stock market prices. In such extreme situations, investors often fear losing their invested capital and resort to what seems like salvation: they sell in panic to secure their assets in cash. At first glance, this may seem sensible. But upon closer inspection, panic selling can be far more damaging than it appears.
History has shown that sharp market declines are often followed by significant recoveries within a short time. An investment in the S&P 500 with no transactions between 2015 to 2024 yielded an annual return of 10.9%. If you exclude the five best trading days—just 0.2% of the total—the return drops to 7.0%. Removing the ten best days, a mere 0.4% of trading days, reduces the return by more than half to 4.5%. This highlights how trying to time the market—and reacting to temporary downturns—can significantly reduce potential long-term gains.
A recent example of this is the market instability in early April 2025. President Trump announced high tariffs on imports from multiple countries on the so-called Liberation Day, sparking fears of a global trade war. The S&P 500 plummeted roughly 12% in short period of time. However, just days later, the tariffs have been postponed for 90 days to allow negotiations for trade deals with the United States, and the S&P 500 swiftly rebounded to pre-correction levels. The quick turnaround underscores the danger of panic selling—reacting emotionally during periods of volatility often locks in losses and risks missing the recovery that follows.
On the other hand, sensible, long term wealth management focuses on strategic asset allocation, emphasizing diversification across different asset classes and regions. For example, in a traditional “balanced” strategy mandate, the S&P 500 index serves as a reference for the performance of U.S. stocks in the portfolio. This neutral weight forms the foundation of the investments and is aligned with the investor’s entire investment horizon. It helps maintain a pragmatic and disciplined approach, even during turbulent market phases by sticking to the long-term investment goals defined with the client.
A wealth manager’s goal is to create added value through tactical adjustment in asset classes allocation, based on economic data and analysis. These adjustments may involve underweighting or overweighting specific asset classes, but always with a long-term perspective in mind and the aim of outperforming the market over years.
Following the motto “Rome wasn’t built in a day,” this approach relies on patience. Those who remain invested benefit from the long-term upward trend of the markets and the compound interest effect—advantages that can easily be undermined by active day trading. Building sustainable wealth is a long-term endeavour. It’s more like running a 42-kilometre marathon than a 100-metre sprint. Patience and discipline are the keys to success.
In a fast-paced world, the allure of perfect timing and quick reactions is strong. Yet, true wealth is built over time. Far from the trap of impulsive trading, its strategic management, diversified allocation, and disciplined execution that pave the way to lasting success.
July 01, 2025
Publications
Publications
Letter from the CIO - June 2025Market rebound: Trade détente eases uncertainty, but risks remain
June 12, 2025
Publications
Withdrawals from the 2nd/3rd Pillars: Will Taxation Change the Game?The Federal Council proposes higher taxes on lump-sum withdrawals from the 2nd and 3rd pillars to align them with pension taxation and support social insurance amid demographic and budgetary pressures.
June 03, 2025
Publications
Letter from the CIO - May 2025The first 100 days of Trump’s new presidency brought renewed volatility and policy uncertainty, shaking markets and challenging investor confidence.
May 15, 2025