Makin' Money

Market timing is hard — really hard

Chris Farrell Dec 14, 2011

Eliot JanewayDo you remember bank analyst Meredith Whitney’s prediction of “hundreds of billions of dollars” of municipal defaults in 2011? Her forecast had credibility since she correctly forecast the banking crisis — especially the troubles at giant Citigroup. The municipal bond market shuddered in the wake of her prediction. There have been some notable problems in muni-land, such as the bankruptcies of Jefferson County, Ala., and Harrisburg, Pa. 

Still, the tidal wave of muni defaults didn’t happen. Not even close. Instead, investors in the $3.7 trillion municipal bond market did well on their holdings this year, with the market generating an average total return of 10 percent through Dec. 12, according to this Bloomberg News analysis.  Tax-exempt securities outperformed U.S. Treasuries, corporate bonds, and the Standard & Poor’s 500.

Meredith Whitney joins a long list of market disaster forecasters that shined bright for a brief moment, only to fall in esteem when the next predicted catastrophe didn’t happen. For example, market timer Joseph Granville achieved near legendary status among individual investors by correctly pegging the 1977-78 bear market. His reputation suffered after wrongly predicting a market crash1982, the year that marked the start of the Reagan bull market. Elaine Garzarelli had a brief flirt with fame after successfully calling the 1987 stock market crash, but missed calls took their inevitable toll on her status as market guru.

I learned the risks inherent in market timing and market gurus when I was employed by Eliot Janeway (pictured), right after graduate school. Janeway created multiple careers as a business consultant, columnist, investment advisor, newsletter writer, and inveterate wheeler and dealer. He was a character.  

I edited his newsletters during the deep recession of the early 1980s. Inflation was high and rising. Interest rates were at double-digit levels. Oil and food prices were in the stratosphere. The Soviet Union was at war with Afghanistan. Janeway masterfully peddled doom and gloom all over the country, bellowing at people about the dire straits we were in — and how to profit from it. He was widely known as “Calamity Janeway.” He also had a genuine talent for spotting trends and going against consensus opinion. 

Here’s the thing: Janeway’s money counsel was stellar at first and eventually turned terrible. He put clients into gold in a big way and they did really well at first, riding gold all the way up to a high of $850 an ounce in early 1980 (the equivalent of more than $2,200 in current dollars). But by 1982, the bull market in gold was over and it sank into a 20-year bear market. The bull market in stocks had begun, but Janeway was convinced the stock market rally wasn’t sustainable. He kept flogging gold, cajoling clients into sticking with the precious metal and disparaging stocks. He was wrong. 

Lesson learned: Market timing gurus are hazardous to your wealth.

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