Markets tend to be efficient, as in pricing in available information. What's your evidence you or anyone else can reliably predict the market, if you can predict the market, why haven't you used your profits to buy Fox?

why would I buy Fox? the shares have barely moved in five years and the dividend yield is less than 1 percent?

Sorry Dean, market timing like you're suggesting is disavowed by even investor advocates like John Bogle. See for example Chapter 5 of his The Little Book of Common Sense Investing.

If you really want to avoid these kinds of market swings the best you can do is:
(1) abide by an asset allocation with a level of stocks/bonds giving volatility that you can tolerate through these kinds of periods, and
(2) dollar-cost averaging.

That's the standard advice.

If you really have a magic 8-ball, you didn't reveal it back in January: you didn't suggest selling stocks back then. And you haven't revealed it now, unless you're explicitly suggesting today is a great time to buy. All you've done is reinforced that hindsight is 20/20.

Not only that, but in a recent post you pointed out that stock prices have little correlation to the state of the economy! (Which I agree with!) So there's no reason to believe that even if you did acknowledge the impact of the housing crisis, what this would mean for buying or selling stocks.

As far as divergent views, I'd be wary of anyone who recommends market timing. Market timing requires trading. Encouraging trading activity is bad for most individual investors.

Dean,

If you bought Fox, you could at least have a good shot of getting on.

Thom,

i don't think of it as market timing. I think of it as bubble recognition. anyone who gets paid the big bucks should be able to do it
http://www.cepr.net/index.php/publications/reports/midsummer-meltdown-prospects-for-the-stock-and-housing-markets/

Of course it's market timing. Thom is absolutely right. In order to make money consistently, you have to both know when to sell and when to buy.

How much did you make shorting the market after your August 2007 piece? It clearly was not enough to afford to buy Fox (presumably richard and bobbyp the entire company) with much left over, which casts some doubt about the ease of outsmarting the market.

nony wrote, Of course it's market timing. Thom is absolutely right. In order to make money consistently, you have to both know when to sell and when to buy.

It's not market timing if you base your decision on fundamentals, as Dean is arguing here.

Based partly on Dean's writings at the time plus what I knew of fundamental analysis, I sold much of my equity mutual fund holdings not way far off the top of the market in the tech bubble. Anyone with a passing knowledge of the history of the stock market knew that the aggregate P/E ratio was simply unsustainable.

It's absolutely true that one cannot time the market per se (looking for the actual mins and maxes). But you can certainly buy and sell based on fundamentals.

That also kept me from buying into the local housing market (suburban MD near DC). I did buy recently for personal reasons, and also because the market has come down.

Of course, someone buying in my region would do really well even buying at the top of the housing bubble if they held the real estate long enough. But with the clear craziness of the market (which Dean's written on extensively), it made no sense to buy.

By your logic, buying in 2005 would have been fine.

I see the "efficient markets" ideology raise it ugly head in response to Dean's post. This is a fine abstract theory, but of course the historical record shows that markets repeatedly get it wrong. Before the housing bubble burst, the majority of economists and the Federal reserve argued that housing prices were justified because the "market is efficient." Was the NASDAQ "efficient" went its index hit 5132.52 on March 10, 2000? Markets are made up of human beings making decisions clouded by the emotions of greed, fear, and group psychology. The history of the last 400 years shows that greed and cheap credit can drive them way up, and fear and hard credit can drive them down even faster. Until there is some certainity that the worse of the credit crisis is past and the picture on the price of oil is clearer, I don't think it is prudent to be deeply invested in the stock markets at this point. And listening to cant and ideology on Fox for advice is worth what one pays for it.

No one "held on" to stocks last year except half-wits and patriotic Fox-fed chumps. What the host says is a truism and this business about market timing is rhetorical obfuscation. Last year you had to be hedged somehow, whether with options, or shorts, or allocation to negatively-correlated asset classes. That said, all praise Fox as an endless source of the dewy-eyed market victims that pay me scrumptious alpha.

Most Americans who invest already dollar cost average because their retirement savings are taken out of their paychecks every two weeks and invested through 401(k)s. Most also stick with their initial suite of funds offered by their employer and don't reallocate based on market signals.

Your glee over current market conditions misses its larger significance, which flows from the societal shift from defined benefit to defined contribution pension plans. Most peoples' retirement status now depends on market conditions at the time of retirement. If the burst housing bubble sends the stock market into a ten-year swoon as some predict, it will substantially reduce the consumption function for the half of the 77 million Baby Boomers with retirement savings who had expected to live well after retirement but could be reduced to blue plate specials at local diners with shuffleboard and pinochle at the local public pool. It is possible that some may have outguessed the market because of the sage advice of the great Dean Baker, but many more will not and most won't even have tried. I don't understand why you take such a smug attitude toward average people who never tried to outguess the market, and never will. They should have sold last August and bought now at a 20 percent discount, indeed. 20-20 hindsight offered to people who weren't even looking. What's progressive about that?

Sadly, when the implied duration of US equities exceeds the span of an average human life, outguessing the market is imperative. This generation are victims indeed, and many will be lucky to enjoy blue plate specials at local diners with shuffleboard and pinochle at the local public pool. The next generation will learn from their experience, however. They will be alert for unregulated commercial predation, jingoistic investment propaganda, and syndicated GOP graft.

MikeGold,

I never take smug attitudes towards average people for not being financial experts. I take smug attitudes toward so-called experts who get six and seven figure salaries who were too dumb to see the stock bubble in 90s and too dumb to see the housing bubble in this decade.
This highly paid buffoons screwed tens of millions of people because of their stupidity. My smugness is directed at them, they do this for living. It is unfortunate that we cannot take away all their wealth as a first step towards compensating their victims.

At the very least, I wish that the same people who messed up again and again were not the only people "expert" enough to be cited in the media. Being wrong seems to be the main qualification for most of the experts who we see cited on economic and financial issues.

I agree; Dean's advice is not about market timing; it's about recognizing the difference between a business cycle and a bubble. Dean Baker, Paul Krugman, and Calculated Risk have long been persuasive this was a bubble with a likely long-term pop on the economy as a whole. And I got my retirement and savings out of what had been very productive non-dollar denominated mutual funds. Thanks y'all!